3 Numbers: Eurozone Private Loan Growth Expected To Tick Higher
James Picerno | Jun 28, 2017 02:01AM ET
- Eurozone private-sector loan growth for May should hit a seven-year peak
- US Pending Home Sales Index for May should post its first rise in three months
- The bull market for EUR/USD could lift the currency above last summer’s peak
Private-sector lending data for May is the main event for today's Eurozone economic releases. We’ll also see the May report for the US Pending Home Sales Index. Meantime, forex traders will be keeping a close eye on EUR/USD, which is closing in on its previous peak from last summer.
Eurozone: Private Sector Loan Growth (0800 GMT): European Central Bank President Mario Draghi on Tuesday suggested that the beginning of the end for monetary stimulus may be near. There is more about that below, vis-à-vis the implications for the euro. From a macro perspective, Draghi’s commentary is one more piece of evidence for thinking that the euro area’s economic recovery is sustainable.
Today’s monthly money supply report from the central bank offers potential for more hard-data corroboration. In particular, keep an eye on the annual growth rate for private-sector loans, a blunt-but-useful proxy for gauging the appetite for risk taking and, by extension, economic expectations.
Numbers published so far this year for loan growth have been encouraging. In the April release, private-sector lending increased 2.4%, holding at a record high, albeit for a data set that starts in 2010. Nonetheless, the upward bias offers another clue for thinking that the macro trend will hold at relatively accelerated rate.
TradingEconomics.com’s consensus forecast calls for loan growth to tick up to 2.5%, which would mark a new high. If the prediction holds, the news will support the upbeat outlook for second-quarter GDP growth, which is on track to hold at a quarterly 0.6% rate, the highest in two years.
US: Pending Home Sales Index (1400 GMT): The US housing market has been in the doldrums lately. It’s premature to label the flat-to-soft data as the start of a sustained downturn. Maybe today’s release of the Pending Home Sales Index will shed some much-needed light for sizing up the second half of the year. Meantime, the year-to-date figures tell us that economic activity in the residential real estate market is in a holding pattern.
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Consider the May read on housing starts, which fell to the lowest pace in eight months. Meantime, existing home sales continue to flatline: last month’s report shows that the number of transactions so far this year remains stuck in a narrow range.
Today’s report on pending sales in May (considered a leading indicator for existing sales) offers an estimate of how the housing market may fare in the months ahead. On that note, the crowd is mildly upbeat. Econoday.com’s consensus forecast sees pending sales higher by 0.5% -- the first increase in three months.
Even if the forecast is right, a slightly firmer reading for pending sales isn’t a game changer. The housing sector still looks set to tread water. But with the economy poised for moderate growth for the near term (as I discussed yesterday), the possibility that housing will perk up in the second half can’t be ruled out.
EUR/USD: European Central Bank President Mario Draghi on Tuesday gave the euro’s bulls another reason to buy hinting at the possibility that tighter monetary policy in the Eurozone is near.
At a conference in Portugal, the ECB chief said the bank may begin to modify its policy stance, which has favored an extraordinary degree of monetary stimulus in recent years. Any shift would be gradual, he added, but the forex market seemed to interpret his comments as a turning point for policy.
The critical factor, of course, is the incoming economic data. So far this year, inflation and economic growth have accelerated and most analysts see more of the same for the near term.
By some accounts, the euro rose above $1.13 at one point in intraday trading on Tuesday – the first trade above that level since last September. Data published by xe.com, however, show that EUR/USD remained just below the $1.13 mark at yesterday's mid-day point.
Regardless, bullish sentiment for EUR/USD is unmistakable, and has been for weeks. Well before Draghi’s speech on Monday it’s been clear that an upside trend for the euro has been intact. For example, last month the 50-day moving average for EUR/USD (based on daily data) rose above the 200-day average for the first time since last October.
The next major milestone: the previous high. Last August, EUR/USD briefly touched $1.13475, based on xe.com. The euro is now within shouting distance of that peak. If the currency reaches that summit again, and particularly if it trades higher, any lingering doubts about the EUR/USD’s bull market status will quickly fade.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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