Wednesday's Federal Open Market Committee outing saw the US central bank take a slightly more hawkish stance than was expected. Equities took only a minimal hit but the long-term impact on emerging markets could prove far more severe,
Article / 06 June 2016 at 5:01 GMT

3 Numbers: Will German factory orders continue to recover?

editor/analyst /
United States
  • Surveys of German manufacturing imply that factory orders will continue to rebound
  • Subdued Eurozone growth forecasts may weigh on Sentix Investor Confidence data
  • The Fed’s Labour Market Conditions Index will give fresh clues on US employment
  • Bleak US nonfarm payrolls data may be just noise rather than the start of a trend

By James Picerno

The monthly update on factory orders for Germany will frame economic news in Europe today. We’ll also see fresh data for estimating the mood in Europe via the Sentix Investor Confidence Index. For the US, in the wake of Friday’s news that job growth slowed to a crawl in May, the crowd will look to today's update of the Fed’s Labour Market Conditions Index for additional perspective on the employment trend.

Germany: Factory Orders (0600 GMT) Factory orders bounced back sharply in March, suggesting that Germany’s export-dependent economy is weathering the recent slowdown in global growth. The chief economist at ING-Diba AG in Frankfurt noted after last month’s update that the “pickup [in factory orders] can mainly be attributed to foreign orders, suggesting that the cooling of activity might not be as severe as it seemed some months ago".

 The broader Fed reading on the labour market may shed light on whether the disappointing nonfarm payrolls figure was just noise, or a sign of trouble for the US economy. Photo: iStock

Survey data for the manufacturing sector points to continued support for the upcoming hard-data releases. Markit’s purchasing managers’ index increased in April and May, rising to 52.1 last month – a four-month high. “It is encouraging that Germany’s manufacturing PMI appears to be on an upward journey, with the latest index reading the highest since January and fuelled by an acceleration in output growth and sustained job creation,” a Markit economist said last week.

The upbeat PMI report boosts the case for optimism in projecting today’s release on factory orders for April. Note, however, that the Bundesbank on Friday lowered its GDP growth forecast for Germany in 2016 to 1.7% in its biannual outlook – slightly below its December expectation for a 1.8% rise in output this year. 

Nonetheless, the bank advised that “German economy's underlying cyclical trend is fairly robust", which implies that there’s still a case for expecting that factory orders will at least hold on to most of the recent gains in today’s release.


Eurozone: Sentix Investor Confidence (0830 GMT) Economic expectations for Europe ticked higher in last month’s update from Sentix. The firm’s benchmark of the mood among investors increased for the second month in the release for perceptions about May. That's good news, of course, because it suggests that the recent slide is reversing. That is statistically correct, although the rebound in Sentix data so far is still modest.

"Overall investors draw a rather non-dynamic picture about the economic condition of the Eurozone as expectations remain unchanged and the perception of the current situation with a change of +1 point displays weak momentum," Sentix noted last month.

Guarded optimism is still called for today, based on the latest estimate of GDP growth for the Eurozone. Last week’s update of the Euro-Coin Indicator, for instance, ticked down in May to a 0.26% quarterly rise, which is roughly in line with the 0.3% increase in the first quarter. Note, too, that Friday's projection for second quarter GDP growth via anticipates an even slower advance: at just 0.22% over the previous quarter, which represents a modest deterioration from Q2 projections in early May.

Is the Eurozone’s macro outlook for sluggish growth poised to head even lower in the weeks ahead? Maybe not, according to crowd expectations. reports that today’s Sentix report will show the sentiment index posting another rise to 7.0, which translates into a five-month high. If so, the news will hint at the possibility for upside revisions for Q2 GDP estimates before Eurostat publishes the official report in late July.


US: Labour Market Conditions Index (1400 GMT) Friday’s deeply disappointing report on nonfarm payrolls for May will reverberate throughout this week. The first order of business for today is looking for deeper context after the sharp slowdown in employment growth last month. Indeed, the US economy minted just 38,000 new jobs at the headline level – the smallest gain in nearly six years.

“This is not a good report, and it may well give Fed officials second thoughts about increasing interest rates again this month or next, as some have suggested lately,” said Peter Ireland, an economics professor at Boston College, on Friday.

Today’s broader reading on the labour market for May via the Federal Reserve’s data release may shed new light on whether the payrolls report was just noise, or an early sign that the economy is stumbling. Note, however, that the Labour Market Conditions Index has been firming up lately. Although the April reading still points to weakness, its rise to negative 0.9 reflects a second month of modest improvement. In any case, this multi-factor benchmark ticked up in April to its highest level so far in 2016.

Given Friday’s news, however, a setback for this indicator wouldn’t be surprising. In that case, given the broad design of LMCI, a hefty slide for this index in May would suggest that there may be a fundamental deterioration unfolding for the trend in US payrolls.


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– Edited by Robert Ryan

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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