Today, the eco calendar is well-filled, especially for a Monday, with the euro zone (final) and UK manufacturing PMI, the US manufacturing ISM, euro zone unemployment rate and first estimate of euro zone HICP inflation. ECB’s Nowotny & Costa are scheduled to speak.
In the US, the manufacturing ISM brought a major disappointment in May, falling back below the 50-benchmark level and reaching even its lowest level since 2009. In June however, the US manufacturing ISM is forecast to have picked up, from 49.0 to 50.5 as also regional business confidence indicators showed signs of improvement. Although a 1.5-points increase is already significant, we still believe that an upward surprise is likely, as regional indicators pointed all into the same direction. Recently, also orders showed signs of improvement. According to the first estimate, the euro zone manufacturing PMI picked up from 48.3 to 48.7 in June, in line with expectations.
German manufacturing PMI disappointed however, falling back unexpectedly, which might have been partly due to the floods. We believe therefore that the risks are for an upward surprise, as the effects from floods in Germany could have faded. Also in the euro area, CPI inflation is forecast to have picked up further in June. The consensus is looking for an increase from 1.4% Y/Y to 1.6% Y/Y, but after last week’s national data, we believe that the risks are for an upward surprise.
Finally, the euro area unemployment rate is forecast to extend it uptrend. In May, the unemployment rate is forecast to have increased from 12.2% to 12.3%, reaching a new record high. We have no reasons to distance ourselves from the consensus as we expect that it is still too early to expect already stabilization in unemployment rates.
Later this week, the eco focus will be on the US labour market, which is the main indicator that will guide the Fed decisions on QE. Due to July 4th US market holiday, the ADP labour report and the initial claims are scheduled for release on Wednesday, while the US payrolls release on Friday is of course key. Fed speakers are few (Dudley and Powell) and we don’t expect new insights from them ahead of the payrolls.
The ECB meeting on Thursday is interesting too. As usual there were several rumours in the run-up, amongst others on the ECB contemplating US-style QE. ECB Asmussen denied that the ECB governing council was looking in this direction, even if he didn’t exclude that in a big institution like the ECB some people were looking at such a tool. He called it policy irrelevant though. Also Coeure suggested that such a tool was not in the ECB toolkit. We will fine-tune our ECB preview later today, but don’t expect new decisions. Mr. Draghi suggested last month that the ECB was happy to stay on the sidelines for some months and slightly better eco data and higher inflation of recent eased the pressure on the ECB to act. During the press conference, it will be interesting to hear more on Mr. Draghi’s comments that the OMT programme was ready to be used. That wasn’t totally new, but it sounded a bit different than similar past comments. We might get some clarification from the president. However, things have eased and the yield spread widening of peripheral countries remained after all very modest. So, we don’t expect too much from Mr. Draghi on this subject. Other issues for the press conference will be the support for credit-starved SME’s in the peripheral countries and the eventual introduction of forward looking guidance as a policy tool.