3 Numbers: German Factory Orders On Track To Rise For 2nd Month

Emmanuel Macron’s triumph in yesterday’s French presidential election removes a major risk factor for the Eurozone’s near-term outlook. His victory over the eurosceptic candidacy of Marine Le Pen comes at an opportune moment for the euro area, which has been showing signs of stronger growth in recent months.

Meanwhile, the main event for scheduled economic releases in Europe today is the March report on German factory orders. We’ll also see the May numbers for the Sentix Investor Confidence Index for the Eurozone. Later, the Federal Reserve publishes the April data for its Labor Market Conditions Index.

Germany: Factory Orders (0600 GMT): Analysts expect that manufacturing orders will rise for a second time in the monthly and annual columns – the first back-to-back advances on both fronts in two years. A minor milestone, but one that – if it holds up – will signal that factories in Europe’s largest economy continue to hum along at a healthy pace.

TradingEconomics.com’s consensus forecast sees monthly orders advancing 1.0% in the final month of the first quarter. That’s a sharp slowdown from the strong 3.4% increase in February, but March’s projected rise translates to a 2.1% year-on-year rise.

If those numbers are correct, new orders will post positive changes in both columns for the first time since early 2015. In turn, that news will strengthen the view that Germany’s forward economic momentum of late will spill over into Q2.

The latest survey data certainly offers a reason to expect that the near-term outlook remains favourable. The Markit/BME Germany Manufacturing PMI was only fractionally lower in April at a strong 58.2. “The final PMI data for April confirm that German manufacturing remained in a high gear at the start of the second quarter, with the headline figure little changed from March’s 71-month peak,” an economist at IHS Markit said last week.

The crowd will be looking for a degree of hard-data confirmation in today’s release at the close of Q1.

Eurozone: Sentix Investor Confidence Index (0800 GMT): The preliminary outlook for Eurozone GDP growth in the second quarter remains upbeat in the wake of the last week’s first-quarter report.

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Now-casting’s Q2 projection published on Friday, for instance, estimates output advancing nearly 0.8% – a solid improvement over the 0.5% gain in last week’s official report for this year's first three months.

The current report for the Euro-Coin Indicator (a GDP proxy) also looks encouraging, albeit at a slightly softer rate of acceleration: the benchmark’s tracking at a 0.67% three-month gain through April.

Recent updates of the Sentix Investor Confidence Index for the Eurozone also signal that growth will improve in Q2. “The euro area is making further economic progress,” the consultancy that publishes the data advised in last month’s update. “The assessment of the economic situation by professional and private investors questioned by Sentix is exceptionally good.”

The sentiment index is expected to tick even higher for May, edging up to 25 from last month's 23.9, according to Investing.com’s forecast. If true, the news will burnish the case for expecting an improvement in Q2 GDP growth.

“The economy is proving to be resilient to uncertainty both abroad and at home,” a senior economist at ING said last week. “Bar a surprise at the French elections on Sunday, Eurozone growth is set for a strong 2017.”

US: Labor Market Conditions Index (1400 GMT): Payrolls rebounded in April, delivering a strong reversal after March’s weak gain. The year-on-year trend, however, still suggests that payrolls’ growth is slowing.

The number of workers at the headline level (government and private sector) increased roughly 1.6% in April from the year-ago figure, up fractionally from March's pace. That’s a decent advance, but the annual trend has been sliding over the past two years and is now well below the post-recession peak of around 2.3%. Despite the latest uptick, gravity still seems to weighing on the year-on-year data.

Is the downshift signalling trouble ahead? Perhaps not, but it would be worrisome if today’s Labor Market Conditions Index (LMCI) – a multi-factor benchmark published by the Federal Reserve – doesn’t confirm April’s rebound in payrolls.

Actually, TradingEconomics.com’s econometric estimate calls for a return to sub-zero terrain for LMCI in April. The upbeat payroll's report for last month suggests otherwise. But if LMCI falls back into the red, the slide will cast a bit of a pall over the rosy glow of Friday’s employment numbers by hinting that April’s rebound isn’t as bullish as it appears.

Disclosure: Originally published at Saxo Bank TradingFloor.com