A host of data is due for release this week in the euro area. Confidence surveys for the month of June (IFO, INSEE, BNB, Istat, EU Commission) should confirm the recovery trend signalled by the PMIs last week…..
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Harmonised inflation is forecast on the rise by one-tenth in Germany to 1.7% y/y, by two-tenths in Spain to 2.0% and by one-tenth to 1.2% in Italy. Retail sales are forecast to increase in May in Germany, as opposed to a decline in France. The unemployment rate in Germany is expected stable at 6.9% for the 7th month in a row. The trend of the M3 aggregate could slow to 3.0-3.1% y/y in May, from 3.2% the previous month.
Busy data calendar in the United States next week. Indications from data should be positive on the whole. In May, orders of durable goods, sales of new homes, and personal spending, should all be on the rise, supporting expectations for a more solid performance of the economy in 3Q than in 2Q. The Chicago PMI is estimated to stay on levels consistent with solid growth, driven by demand in the automotive sector.
Monday 24 June
Euro area
– Germany. The IFO index is estimated to improve in June to 105.9, from 105.7 in May.
Assessments of the current situation could brighten only marginally (to 110.2). Expectations could rise back to 102 in June from 101.6. On average in the spring months, the IFO stayed below 1Q levels, although data on orders and output pointed to an acceleration in manufacturing in the period, which should secure GDP growth of 0.4% q/q vs. +0.1% q/q in the opening months of the year.
– Italy. The consumer confidence index should be up in June to 86.3 from 85.9 in May, still not far off its long-term low of 84.7 hit last January. However, confidence does not yet seem to have started a clear uptrend, and is still failing to indicate a recovery in the spending of households.
– Belgium. The BNB index is expected to recover in June to -11.8 from -12.4 in May, still well below the long-term average (-7.7). A stronger recovery could signal an acceleration in demand from the German manufacturing sector.
Tuesday 25 June
Euro area
– France. The INSEE index of business confidence in the manufacturing sector should recover slightly in June to 93 from 92 in May, in the wake of an improvement in expectations in terms of overall demand, current output, and the inventories uptrend. In any case the index remains below its long-term average (99) and is still not showing a clear recovery trend.
United States
– Orders of durable goods are forecast to increase in May by 2.2% m/m, from +3.5% m/m in April. Orders for non-defense aircrafts industry should show another sharp increase, as was the case in April. Net of the transport component, orders should be up by 0.9% m/m. Recent survey data were weak, and the orders component of the May ISM in particular corrected to 48.8 from 52.3 in April; the Philly Fed and Empire indices also gave indications of weakness, offset only by the very strong Chicago PMI (orders up to 58.1 from 53.2 in April). Our forecast is that orders and activity in the manufacturing sector will resume growing starting in 3Q 2013.
– Households’ confidence in June, as surveyed by the Conference Board, should stabilise close to its May levels. In June the index should level off at 76, after surging to 76.2 in May (+7.2 points). The Bloomberg Comfort weekly sentiment index corrected by -1.6 points at the beginning of June, after staying relatively stable on high levels for two months. Market volatility is probably responsible in part for the hiatus in the confidence uptrend. We expect confidence and consumption growth to reaccelerate in 3Q 2013.
– Sales of new homes in May are expected to increase to 475k from 454k in April. Data on housing starts and the indications provided by the NAHB builders’ confidence index point to a resumption of the growth trend in the real estate sector, following a pause in March and April. The NAHB survey’s current sales index soared by 4 points to 48 in May, from 44 in April.
Wednesday 26 June
Euro area
– France. The final reading of GDP growth in 1Q should confirm the preliminary rates of -0.2% q/q and -0.4% y/y. More in detail, we expect both final domestic demand and net exports to make negative contributions, as opposed to a positive contribution from inventories. The slowdown in domestic demand is due in particular to a cooling of the consumption trend, as a result of uncertainties marring the labour market and to lower fixed investments (in particular in the corporate and household segments), expected to feel the impact of weak confidence in the recovery. The trend of net exports should be affected in particular by lingering stagnation in the euro area, as the European countries are France’s main trade partners.
United States
– The final estimate of 1Q GDP should confirm the first revision, at +2.4% q/q ann. With consumption making a strong contribution (+3.4% q/q ann.).
Thursday 27 June
Euro area
– France. The INSEE consumer confidence index is estimated to rise in June to 81, from 79 in May, therefore, staying on depressed levels, well below the long-term average (100). As also highlighted by the June sentiment index drawn up by the European Commission, confidence is improving throughout the euro area, also supported by the slowdown in inflation recorded in recent months.
– Spain. The preliminary estimate should set inflation at 2%, from 1.8%. In the month, consumer prices should be up by 0.1% m/m both in terms of the national and harmonised rates. The energy component is expected to have remained stable, given the slight recovery in petrol and fuel prices. The core index should come in stable at 1.8%, in line with May.
Spanish inflation should peak in June, and subsequently decline progressively in the course of the second half of the year (averaging 1.8% in the year) as the effects of last September’s VAT hike wane and thanks to the favourable trend of the energy component. The wide output gap could result in a faster slowdown in the trend of core prices.
– Germany. In June, the unemployment rate is estimated to stay stable at 6.9% (for the eighth month running). The number of unemployed workers may have increased slightly, by 5k, vs. a 3k rise recorded the previous month. In the months ahead, unemployment numbers could continue to increase, as this variable typically lags the cycle. In any case, the unemployment rate should rise by a couple of tenths at the most, and only temporarily, as companies are signalling only a slowdown in hiring intentions.
– The trend of the M3 could slow by one-tenth in May, to 3.1% from 3.2% in April. The shift to the advantage of longer-term deposit instruments, combined with reduced volatility on the markets, will offset only in part a favourable base effect. Credit to the private sector, and in particular lending to enterprises, should continue to contract.
– The European Commission’s economic sentiment index is expected to improve to 90.3 in June from 89.4 in May (while staying below the long-term average of 99.8). Confidence is expected to have brightened in manufacturing to -12.4 from -13 and by one point in the services sector, to -8.3 from -9.3, based on the indications provided by the PMIs. The final reading of consumer confidence should confirm the preliminary index of -18.8. The recovery in the Commission’s sentiment index indicates that the euro area is making progress towards exiting the recession, albeit at a slow pace.
United States
– Personal spending in May should grow significantly, in light of very strong retail sales data and of higher prices. Spending should be up by 0.7% m/m, fuelled by a sharp rise in the auto segment (+0.6% m/m) and by an acceleration in services, which corrected in real terms in April. Personal income should growth modestly, by +0.3% m/m. Labor income should be up by 0.1% m/m, given stable hourly earnings and a 0.1% increase in work hours in May. The savings rate is estimated to fall further, from 2.5% in April to 2.1%, back in line with its lows since the end of 2007.
Friday 28 June
Euro area
– Germany. Retail sales are estimated to rise by 0.4% m/m in May, from +0.4% m/m in April.
Consumption in Germany is well supported by a resilient labour market and wage trend. If confirmed, the reading would leave sales on course for a +0.2% q/q in 2Q, from +1.8% q/q in the opening months of the year.
– France. Consumer spending could drop further in May, by -0.1% m/m, after declining by -0.3% m/m in April. Auto sales could correct the 1.8% m/m increase in April, as registrations were negative in the month. The year-on-year change would stay at 0.2% y/y in May, in line with the previous month. Spending would in any case stay on course for a recovery in 2Q, following the -0.2% q/q reading in March.
– Italy. Business confidence in the manufacturing sector could improve slightly in June, to 88.9 from 88.5 in May, in any case staying below the long-term average of 100, and lower on average in 2Q (88.4) than in 1Q (88.6). The components tied to expectations for domestic orders and export orders should not change significantly. Expectations with regards to future orders and the production outlook could prove less pessimistic. However, it is early days yet to
envisage an exit from the recession.
– Italy. Consumer prices may have increased by one-tenth in June, as was the case in May. The rise would be broadly in line with the normal seasonal trend, as the energy component’s contribution is expected to be close to neutral. In year-on-year terms, inflation would slow by one-tenth to 1.1% at the national level, and to 1.2% in harmonised terms. Prospects for the coming months are tied to the potential VAT hike and its timing.
– Germany. In June, consumer prices should be unchanged at the national level and rise slightly (-0.1% m/m) in terms of the harmonised index. Inflation is expected to rise back to 1.7% y/y from a previous rate of 1.5% in the national measure, and to increase by one-tenth in harmonised terms. Starting in July, German inflation should turn back down, thanks to the negative contribution of the energy component.
United States
– The Chicago PMI is estimated at 58.5 in June, stabilising close the very high levels recorded in May. Last month the Chicago index went against the trend of all the other manufacturing sector surveys, and leapt to 58.7 (+9.7 points), giving extraordinarily positive indications for all components. The auto sector, which is especially important in the Chicago area, is recovering sharply, and there are signals of increased activity in the summer as well, in order to meet growing demand. Therefore, the Chicago PMI should continue to provide more solid indications than the other surveys.
– The University of Michigan’s consumer confidence index for June (final) should confirm the high levels seen in the previous two months, while interrupting the uptrend recorded in April-May.
Appendix
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