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3 Numbers: EU Retail Outlook Softens; US ISM Services, Labour Market

Discussion in 'Technical Analysis' started by Kaitlin, Oct 6, 2015.

  1. Kaitlin

    Kaitlin Forum Member

    Aug 29, 2015
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    • PMI data implies that Eurozone retail sales will ease in August
    • US ISM Services Index should tick lower in September but still show solid growth
    • The Fed’s Labor Market Conditions Index is likely to weaken in September

    Retail spending in the Eurozone is in focus with today’s hard-data update for August. Later, two September releases for the US will be carefully analysed in the wake of Friday’s sharply disappointing jobs report. For a deeper perspective, keep an eye on today's ISM Non-Manufacturing Index and the Federal Reserve’s monthly update of its Labour Market Conditions Index.

    Eurozone: Retail Sales (0900 GMT) Today’s update on retail spending in the currency union for August will be closely analysed for fresh clues on how the Eurozone’s mild recovery is faring in the third quarter. The outlook is looking a bit more challenged, in part because the global economy remains wobbly.

    In what could be an early sign of things to come, Now-casting.com’s weekly update on third-quarter GDP for the Eurozone ticked lower on Friday, posting the first setback in six weeks. Although the fractionally lower 0.36% quarter-over-quarter rise in Q3 GDP is still close to Q2’s 0.4% pace, it’s unclear if this is the start of a period of managing expectations lower in what is clearly an increasingly challenged macro climate around the world.

    But a new EY Eurozone Forecast last week asserted that the outlook is still encouraging. The Continent is in a "'sweet spot', benefiting from lower energy prices, a more competitive exchange rate and solid demand in the UK and US.” The consulting group explained that “consumer demand remains a key driver of the Eurozone recovery” in this year’s second half.

    EY's upbeat view will be tested in today’s report for retail spending. In the previous release, the numbers offered some encouragement, with both the monthly and year-over-year comparisons rising. Real retail spending increased 2.7% in the year through August, the strongest pace since last December, according to Eurostat data.

    But sentiment in the retail industry fell in August, according to Markit’s Eurozone Retail Purchasing Managers’ Index (PMI). This benchmark slumped to 51.4 from July’s comparatively strong 54.2 level. Although the August PMI data is still above the neutral 50 mark, the setback suggests that today’s official report on consumption will deliver a softer set of numbers relative to the previous release.

    US: ISM Non-Manufacturing Index (1400 GMT) Friday’s employment report was unusually disappointing. The much lower-than-expected rise in payrolls in September comes at a vulnerable time, due in no small part to mounting signs that China’s growth is decelerating, which suggests a downward bias for global output in the foreseeable future.

    As for the world’s biggest economy, last week’s big miss for the US nonfarm jobs data raises the risk level a bit higher for the near-term outlook. Moderate growth is still a reasonable forecast, but the margin for disappointment in macro updates has evaporated from here on out. If nothing else, the odds for a rate hike by the Fed are almost certainly on hold until we see firmer numbers in the labour market.

    One of the key sources for optimism is the ongoing strength in the services sector, which represents the lion’s share of economic activity in the US. The ISM Non-Manufacturing has remained comfortably in expansionary territory recently, albeit dipping a bit in the August update to 59.0. But that still reflects a solid rate of growth (a reading above 50 indicates expansion). In contrast with the stumbling manufacturing sector in recent months, the trend in services remains convincingly positive.

    Economists think that the growth premium in services will cool a bit, but only slightly. Econoday.com’s consensus forecast calls for a mild decrease in the ISM Non-Manufacturing Index to 58.0 in September. That still equates with a healthy rate of expansion. But after Friday’s deeply disappointing jobs report, a major downside surprise will send more shockwaves through the crowd.

    US: Labour Market Conditions Index (1400 GMT) If the September payrolls report was an anomaly, we’ll see the evidence in today’s update from the Federal Reserve’s broad profile of the labour market. But if the weak increase in jobs is a genuine warning sign, today’s Fed update will be no less valuable for providing clarity.

    The good news is that the Labour Market Conditions Index (LMCI), which monitors 19 indicators, has ticked up recently, rising to 2.1 in the August reading – the highest since January. That’s a relatively modest level, but at least this benchmark has been showing signs of improvement after slumping briefly into negative territory earlier in the year. The question is whether Friday’s discouraging jobs report reflects deeper trouble for payrolls and the economy overall. The crowd will look for an answer in today’s LMCI data for September.

    Expectations are surprisingly upbeat. Econoday.com’s consensus forecast sees only a fractional dip in today’s September reading: 2.0 vs. 2.1 in the previous month. Doesn’t the weak growth in payrolls for last month imply a deeper setback for LMCI? If not, perhaps the labour market isn’t as frail as Friday’s numbers suggest.
    In that case, next month’s revisions may deliver a degree of healing for the payrolls data. On the other hand, a bigger-than-expected tumble in today’s LMCI would confirm the worst fears for anticipating the outlook for the labour market and the economy.

    Disclosure: Originally published at Saxo Bank TradingFloor.com

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