As the Eurozone seemed to fall apart at the seams this weekend with everything unraveling let’s take a look at what Eco data is coming at us this week in the EMU.
The week starts with the confidence indicators in the focus (PMI’s and German IFO), while also the M3 data will be worth watching. Last month, the PMI’s showed early signs of bottoming out and it will be interesting to see whether this will be confirmed this month.
In June, euro zone manufacturing PMI stabilized unexpectedly while the consensus was looking for a marginal worsening in business sentiment. Euro zone manufacturing PMI stayed unchanged at 45.1 and for this month even a marginal increase (to 45.2) is forecast. We believe that a slightly stronger outcome is likely, probably due to an upward surprise in Germany. Euro zone services PMI is forecast to stabilize at 47.1 in July after increasing slightly in June (from 46.7 to 47.1). Also for the services sector we are slightly more optimistic and believe that another, albeit limited increase is not excluded.
In Germany, the IFO business climate indicator is forecast to worsen for a third straight month in July. The consensus is looking for a decline from 105.3 to 104.5 due to a worsening in both the current assessment and the expectations sub index. We believe that also for the IFO the risks are on the upside of expectations. The PMIís however might give us further guidance one day ahead of the IFO.
Finally also the euro zone M3 money supply and credit growth data will be interesting. After a slowdown in April, euro zone M3 money supply picked again up in May, rising from 2.5% Y/Y to 2.9% Y/Y. For June, a stabilization is expected, but more interesting will be the lending data.
Despite the uptick in M3 in May, lending to both households and non-financials continued to sputter. The June data will probably show little improvement, but in the coming months it will be interesting to see whether the deposit rate cut (to 0%) will have some impact on lending.
Finally, in the UK the second quarter GDP data will be released. For a third consecutive quarter GDP is forecast to have contracted in the three months to July. The consensus is looking for a 0.2% Q/Q contraction, slightly up from the 0.3% Q/Q contraction during the first three months of the year. We have no reasons to distance ourselves from the consensus, although we see few reasons for an upward surprise especially as the loss of a working day weighed on activity, which the ONS does not seasonally adjust.
It is a mild week and most likely news flow will be the prime focus with the Troika meeting in Athens and Germany drawing a line in the sand. Valencia is now reporting they need a bailout which will force Spain to accept an entire bailout package and put an end to these games being played by the Spanish government. It should be a stressful week for the markets.