3 Numbers To Watch: German Retail Sales, UK M4, US Dallas Fed

Today’s August report on retail sales for Germany will set the tone for thinking about the economic outlook for the Eurozone this week. Later, the Bank of England releases M4 money supply numbers for Britain and the Dallas Fed updates its regional sentiment survey for September.

Germany Retail Sales (06:00 GMT): Germany remains the Eurozone’s leading economic light by far, but its frontrunner status isn’t obvious if you’re looking at the recent trend in retail sales. The surprisingly steep 1.4 percent decline in July was the second straight month that retail spending contracted. In the first seven updates of 2013, five months suffered red ink. The year-over-year comparison is still positive, however: consumption increased 2.3 percent in July versus the same period a year ago. But do the soft numbers in recent months raise concerns that something’s amiss in Germany’s prospects for continued growth? No, at least not yet. But today’s update will be closely monitored for clues on what comes next.

For now, expectations remain upbeat. “German consumers are expecting the economy to gain momentum again in the coming months,” advises the press release for the September update of the Gfk German Consumer Climate Index. “Germans' desire to shop also appears to be unbroken. In fact, willingness to buy once again improved on the record value of the previous month.” If today’s release on retail sales suffers another monthly dip, however, it’s going to be harder to reconcile the diverging paths between sentiment and the hard data on consumption.

Bank of England M4 Money Supply (08:30 GMT): At this month’s meeting of the Monetary Policy Committee, the Bank of England (BoE) decided to leave its policy rate unchanged at 0.5 percent. Last month, the BoE advised that it wouldn’t begin raising interest rates until the unemployment rate falls to seven percent. With the jobless rate currently at 7.7 percent, that leaves a lot of room for letting monetary policy err on the side of stimulus. Or does it? Today’s monthly update on the M4 monetary aggregate may offer a clue for refining the outlook.

In the last two releases, the broad money supply's growth rate has been decelerating, settling at a 4.5 percent year-over-year pace through July (based on M4 excluding intermediate other financial corporations—a “more economically relevant measure of broad money than the headline measure of M4,” according to the BoE). Is this a sign that the central bank is laying the groundwork for tighter policy? It’s too soon to say for sure, but the upbeat news on Britain’s economy lately inspires wondering when the liquidity train will begin to slow. Meanwhile, the BoE governor last week said that it was time to pull the plug on the central bank's bond-buying program now that the economy is recovering. In search of fresh clues on what this means for monetary policy in October, the market will be closely watching today’s report to learn if it’s time to adjust expectations. The first question: Will M4’s annual pace continue to slow in the August data?

US Dallas Fed Index (14:30 GMT): The US economic profile for September is still a work in progress, and a mostly mysterious one at that. Today’s release from the Dallas Fed will make it slightly less mysterious and offer another clue for anticipating tomorrow’s widely followed ISM Manufacturing Index, which tracks the national trend in this sector. The monthly survey data from the Dallas Fed is, of course, just one piece of the overall US macro puzzle. But if this regional index can keep its head above the water line (defined as the neutral 50 mark), we’ll have a bit more confidence for thinking that the ISM read will follow suit.

Actually, we’ve already seen several regional Fed indexes for September. Three of four previously numbers released pointed to softer conditions this month. The exception is the Philadelphia Fed Survey, which reported a surprisingly powerful surge in manufacturing activity in its region. Keep in mind too that the US Manufacturing Purchasing Managers Index slowed a bit in this month’s flash estimate but remained comfortably in growth territory (pdf). Given this motley crew of data, it’ll be interesting to see how the news from Dallas stacks up. And for yet another perspective, stay aware that the regional ISM Chicago PMI arrives 45 minutes ahead of today’s Dallas Fed release. Unless we see sharp falls in one or both of today’s updates, the full spectrum of survey numbers so far this month imply that tomorrow’s national ISM release will continue to favour modest growth for US manufacturing sector.