Reoprts: Germany IFO Survey, UK CBI Index & US Durable Goods

In the wake of weak PMI data for Germany in yesterday’s releases, today’s Ifo Sentiment Survey will be keenly analyzed for additional perspective on how April is shaping up for the Eurozone’s leading economy. Later, we’ll see some numbers for estimating retail spending in Britain, followed by the March update on new orders for durable goods orders in the US.

Germany Ifo Survey (08:00 GMT): Yesterday’s update on purchasing managers indices for Germany was doubly disappointing, raising concerns that Europe’s primary source of growth is stumbling. The manufacturing and services sectors contracted in April, according to the flash PMI estimates from Markit Economics. “The performance of Germany’s private sector has shown a weakening trend in each of the past three months and, more worryingly, April’s survey highlights an outright decline in output for the first time since late 2012,” notes the firm’s senior economist in yesterday’s press release.

The stakes, then, are quite a bit higher for today’s widely watched Ifo Sentiment Survey, which is also expected to show deterioration in the April reading. A mild retreat would confirm the weak numbers in the PMI release, although the danger here is that the Ifo data takes a sharp tumble, which would be especially troubling at this point.

"Right now we are in a place of sub-par global growth, and the Eurozone is lagging behind, stuck in recession," an ABN-AMRO macro strategist tells Reuters. "It makes us more confident of an ECB rate cut in May, but really the ECB should be doing more and thinking of other ways to stimulate growth."


UK CBI Distributive Trades Index (10:00 GMT): Retail sales in March were the lowest in seven months, according to previous distributive trades survey from the Confederation of British Industry (CBI). More troubling is the fact that this survey index has been trending lower in each of the past four months, and currently sits at zero as of last month. In other words, the number of firms reporting higher sales over the past year matches the number reporting falling sales--the weakest reading since last August.

But analysts think that we’ll see a rebound in today’s report, which is considered a leading indicator for consumer spending in Britain. Upbeat expectations for April were also reported in CBI's March report, which noted that “retailers expect sales growth to pick up [in April] after flat sales in March.” Stronger numbers couldn’t come at a better time. Indeed, yesterday’s CBI Industrial Trends Survey was quite gloomy, thanks to a bigger-than-expected fall in this index of economic expectations among British manufacturing executives.

Nonetheless, some policymakers continue to insist that better days are just around the corner for Britain’s economy, including the Bank of England’s Ian McCafferty. In a speech yesterday, he said he’s “hopeful for a modest pickup in growth as some of the negative factors that have made the last couple of years so difficult start to fade, and as levels of confidence, so badly battered by the impact of the euro crisis, start to heal.” Today’s CBI release will reveal if the retail industry shares McCafferty’s optimism.


US Durable Goods Orders (12:30 GMT): New orders for manufactured goods rebounded handsomely in February, easing fears that demand for the industrial-sector products was falling off the deep end. But to convince the market that there’s more than monthly noise at play, a repeat performance is required. Unfortunately, the odds are considered low for another encouraging release. The consensus forecast sees more red ink in today’s March update on durable goods orders, with the headline number slipping 2.8 percent versus February

If the forecasters are right, and durable goods fall, it’ll raise new doubts about business cycle risk for the US. True, durable goods orders are released with a lag relative to most reports. Today's update will cover March, which has already witnessed a wide array of economic releases. In turn, we already know that last month was relatively wobbly compared with January and February. Today's release isn't likely to change that view.

Nonetheless, pay close attention to how the one-year trend fares. It is sometimes hard to tell what's going on with this volatile series from month to month, but the year-over-year comparison tends to issue clearer signals. By that standard, the recent dip into negative territory for durable goods orders versus year-earlier levels is worrisome... if it continues. The trend turned positive in the last two months and so it would be an encouraging sign if today's comparison can at least remain north of zero.