3 Numbers To Watch: UK CPI, German ZEW, US NAHB Housing Index

There are several economic reports scheduled for Tuesday, including three that you can’t afford to miss: the August update on consumer price inflation in the UK, the ZEW Indicator of Economic Sentiment for Germany, and the NAHB Housing Market Index for the US. In addition, keep an eye on the EU merchandise trade report (exports in particular), which is released at 9:00 GMT and will provide new clues about the Eurozone’s alleged recovery.

UK Consumer Price Index (08:30 GMT): Today’s update on inflation in Britain will be closely watched in the wake of the recent rebound in economic activity. At issue is the pressure, real or perceived, on the Bank of England (BoE) to raise interest rates amid any signs that the inflationary trend is gaining too much upward momentum too fast. Deciding where that red line lies is as much art as it is science. One school of thought asserts that higher inflation at this stage is still helpful because the recovery, impressive as it's been based on recent economic reports, is still vulnerable. The hawks, by contrast, are quick to caution that the annual rate of inflation has been running well above the BoE’s two percent target for some time and so the tolerance is waning (or at least should be) for letting consumer prices rise at a faster rate.

Last month’s report showed that the inflation rate ticked down a bit: advancing 2.8 percent for the year through August, down slightly from 2.9 percent through July. Analysts think we’ll see another marginal bout of deceleration. The consensus forecast sees the year-over-year change through August at 2.7 percent. If the prediction of a lesser pace holds, the BoE will have a bit more room to leave interest rates unchanged, at least for now. On the other hand, an upside surprise would inspire the hawks to push their agenda harder.

Germany ZEW Indicator of Economic Sentiment (09:00 GMT): This widely followed measure of the mood in the financial community carries more import than normal today as the crowd struggles to decipher whether the Eurozone’s reported escape from recession is the real deal. Recent economic news hasn’t been particularly convincing and so most of the optimism continues to rely on the return of growth to GDP in the second quarter. But that’s fast becoming ancient history. Even worse, some sceptics worry that the slight advance in Q2 GDP may turn out to be noise as opposed to a turning point for the better. Many (most?) analysts are still reluctant to pull the plug on argument that there’s a mild rebound underway. In any case, both side of this debate will focus on today’s ZEW data to make their respective cases.

For the moment, the optimists can still draw on support from the ZEW trend. In last month’s update, both the current situation and expectations readings turned moderately upwards. The current situation index climbed to its highest level since July 2012 while the expectations number touched a five-month high in August. More good news on both fronts is expected in today’s report: the consensus forecast anticipates another set of modest gains. And not a moment too soon. The bulls can’t afford a setback with today’s ZEW release. Indeed, quite a lot of the Eurozone’s prospects for recovery remain closely linked with Germany. That's nothing new. The question is whether it's set to remain the standard for the foreseeable future?

US NAHB Housing Market Index (14:00 GMT): The positive momentum in the US housing market has slowed recently, in part because interest rates have been rising. A 30-year conventional fixed mortgage jumped to nearly 4.6 percent earlier this month, based on the national average — up from less than 3.4 percent as recently as this past May. Higher financing costs create headwinds for the still-recovering housing sector, but for now it still looks like the expansion is maturing rather than dying.

One reason for seeing more gains ahead is that there’s no sign that homebuilders are turning pessimistic, based on recent updates to the NAHB index, which climbed for the fourth time in a row last month. “Builder confidence continues to strengthen along with rising demand for a limited supply of new and existing homes in most local markets,” noted the chief economist of the National Association of Home Builders in a press release with the previous report. “However, this positive momentum is being slowed by the ongoing headwinds of tight credit and low supplies of finished lots and labour.”

No wonder that the market’s looking for today’s number for September to remain unchanged at 59. Nonetheless, if the forecast holds up, the index will stick at the highest reading since the heady days of 2005, before the bull market in housing collapsed. In that case, we’ll have more confidence for thinking that tomorrow’s update on housing starts for August will continue to expand.