EU Market Insight: Fresh Data to Shed More Light on German Machine
ING's research team suggested in its Friday note that fresh ZEW and Ifo
readings due next week may shed more light on the direction of the
German economy in the second quarter following the relatively successful
first quarter. Final German GDP figures for the first quarter of this
year will likely confirm the preliminary reading, suggesting that
Germany's GDP increased 0.7% in the
January-March period and 1.3% annually, non-seasonally adjusted. Even
so, the German Finance Ministry remains cautious.
The Zentrum fur Europaische Wirtschaftsforschung (ZEW) will release its Economic Sentiment Index for the next six months for Germany. According to expectations, the economic sentiment will head higher to 12.0 in May from 11.2 measured in April, while the Current Situation Index is expected also to trend up to 48.8 from 47.7 in the previous month. The second index reflects institutional investors' opinions on the current situation.
Another closely watched survey, Ifo's Business Climate Index, is projected to tick up to 106.8 in May, from the 106.6 booked in April. The Current Assessment sub-index is seen higher at 113.4 compared to the 113.2 registered a month ago. The Ifo Expectations Index - indicating firms' expectations for the next half year - may also edge up to 100.6 from the 100.4 registered last month.
A set of euro zone PMIs will be keenly awaited before that, on Monday, including the
German manufacturing, services and composite index figures. The flash
manufacturing PMI for Germany is expected to register a
slightly better 52.0 figure compared to the final 51.8 result recorded
in April. Meanwhile, the index for the services sector is projected to
come
in at 54.6 following the 54.5 reported a month ago, while the composite
index is also showing an improving trend to 53.8 from 53.6 measured
earlier.
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Meanwhile, the euro will finally get some love next week. Compared to many of other major currencies, the decline in EUR/USD was restrained this week by the lack of key economic data and comments from European policymakers. That changes completely next week with May PMIs (manufacturing, composite, services), ZEW, IFO and German first-quarter GDP numbers scheduled for release. The ECB is in wait-and-see mode and the PMIs will go a long way in telling us how quickly it will ease again. The currency pair found support at 1.12 this week and stronger numbers will confirm a bottom while a soft report could drive the pair to fresh 1-month lows.
Like USD/JPY, USD/CAD also broke out strongly this week but mixed data prevented a strong extension to the rally. Retail sales fell sharply in March but core consumer prices increased more than expected. CPI increased 0.3%, which was in line with expectations but core prices rose 0.2% against 0.1% forecast. On annualized basis, price pressure in Canada are rising, which is slightly at odds with the sharp drop reported by IVEY PMI. The Bank of Canada meets next week and Friday’s economic reports should leave its outlook unchanged because spending is weaker but prices are rising. The last time that we heard from the BoC, it left interest rates unchanged and upgraded its 2016 GDP forecasts. Although CAD traders shrugged off their positive assessment, this move reflected their optimism for the domestic economy. The main caveat this time around is the wildfires in Canada and how much it will impact Canadian GDP. Some economists believe that the impact is negligible but others think it could stall growth in Q2. We're sure the BoC has ts own views that it could share or allude to in its monetary policy statement.
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