The market is largely focusing on tomorrow’s ECB rate decision. However, before then, there are still some important data points on the calendar that could move the market. Chief among them is the final reading of the eurozone’s first quarter GDP and the unemployment change.
We are also expecting a data point that is often forgotten by the mainstream press. And it’s quite relevant right now: factory orders from Germany.
Europe is in a somewhat unusual position economically. For most of its history, Germany has been the driver growth. Lately, Germany has fallen behind due to factors we discussed in a previous article. But that doesn’t mean that the largest country in the eurozone is any less relevant.
Add to that the current uncomfortable political situation in Germany, we might not be looking at much upside in the near future.
It’s All About the Big Countries
Manufacturing remains the largest driver of Germany’s economy. So, where factory orders go, so does their economy.
This is why long-term investors will want to keep a watchful eye on this particular data point, even though it’s not generally expected to move the market immediately.
The annualized figure has been consistently negative since September of last year. While a certain amount of volatility on a monthly basis is normal for this indicator, positive results have mostly been the exception for the last year or so. This goes hand-in-hand with a drop in car production along the same period.
The consensus this time around for factory orders is for another drop to -3.2% on a monthly basis. This would drag the annualized rate down to -7.2% from the -6.2% prior.
Without an about-face in these figures and the government steadfast in maintaining its surplus, we shouldn’t be expecting a return to significant growth in Germany for some time.
The Important Numbers
At 11:00 CET (05:00 EST) we could have some volatility in EUR pairs following the release of two important numbers at the same time: final GDP and Employment Change. Of course, with the market waiting for the ECB, it wouldn’t be surprising if the response is a little less than what these figures can normally muster.
Europe continues to manifest the general theme that has been frustrating central banks in most of the developed world: lack of growth, low inflation, and decreasing unemployment.
While people are getting jobs, this doesn’t appear to be translating into increased spending or economic output. With increasing debt across the eurozone, there is constant political pressure to keep interest rates low. How is the ECB going to respond? Well, tomorrow we’ll find out.
What We Are Looking For
The consensus of expectations regarding the GDP number is that there won’t be any change, and we’ll have the Q1 figure affirmed at a 0.4% growth. An improvement over the prior quarter, to be sure, but the 1.2% annualized figure won’t leave anyone happy.
Quarterly employment change is also expected to be affirmed at 0.3%, coming to an annual rate of 1.3%. This is a repeat of the prior quarter, as a matter of fact, and just below the long-term average. The unemployment rate has continued to trickle lower throughout the whole period.
The consensus is overwhelming for a repeat of the figures, so we should only expect a market reaction if there were a change in the numbers.