3 Numbers to Watch: US current account, production and sentiment
Friday is dominated by US data of secondary importance with perhaps the June University of Michigan consumer sentiment being the most important. Though this does have the capacity to attract attention, eyes are already turning to next week’s Federal Reserve meeting and hopes of clarification on what and when the Fed will do with its asset purchase programmes. During the European session we also get the final May consumer price index and first-quarter unemployment numbers at 09:00 GMT, but no surprises are expected here. Consider them reminders that perhaps the European Central Bank's next move after the German constitutional court hearings should be to signal easier policy, especially with the current high EURUSD levels. The International Monetary Fund releases its US Article IV Consultations statement at 15:00 GMT, but it should be a non-event.
US Q1 Current Account (12:30 GMT): The current account in the first quarter is expected to show a deficit of USD 107 billion, slightly less than the USD 110.42 billion seen in the fourth quarter. Large deficits are usually negative for a country’s currency so this might move the EURUSD a bit – but the market is so focused now on asset price nervousness and the JPY that macro numbers will probably be of little interest to the markets.
U.S. May Industrial Production & Capacity Utilisation (13:15 GMT): Production is expected to have increased by 0.1 percent after a fall of 0.5 percent in April. Capacity utilisation is expected to have increased to 77.9 from 77.8 in April. Quite modest increases, but the rising trend in the production is still intact, while capacity utilisation seems happy to remain at historically high levels. The real question is will the high capacity utilisation lead to more fixed investments, which would kick US growth into a higher gear and perhaps increase inflationary pressure? Or would production simply be moved abroad and thus avoid component scarcities, inflation and eventual monetary tightening? That was the story of the previous two decades, with Asia acting as the inflation sink for the developed world.
US June University of Michigan Consumer Sentiment (13:55 GMT): This flash estimate is the first proper data point for the month of June. Sentiment index is expected to be practically unchanged at 84. This is in the higher end of the range seen since the bottom in 2009, but combined with the negative or slow-growth macro environment as well as bullish housing and stock markets, it is a good time to take a longer look at sentiment. The long-term economic cycles are quite obvious: the high levels during the eighties, followed by a crash, then a determined recovery during the nineties with an IT-bubble top, followed by a crash. The 00’s housing bubble period saw sentiment around the levels seen in the eighties, and then the ‘Great Recession’ took the sentiment down to a trough last seen during the 1970s oil crisis. It is plausible that sentiment is currently in a nineties-style steady, moderate trend higher, which would be followed by an eighties-style range. While there are many threats to the recovery, it has always been like that. Consumer sentiment is a self-reinforcing feedback loop and asset prices are a reflection of that reality. While the current sentiment numbers might seem high in comparison to the recent range, they are mediocre in the longer timeframe.
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