Week ahead in Europe: UK PMI surveys, German factory orders eyed - Nomura

UK PMI surveys and German factory orders are in focus in the euro area this week, notes the Economics Team at Nomura. 

Key Quotes

UK PMI surveys (Mon, Tues, Weds): The fall in the services PMI was responsible for most of the almost 2-point decline in the composite index in May. Still, at 54.4 the current level of the composite PMI is in line with its long-run average – and consistent with a runrate
of economic growth of around 0.5% q-o-q. The manufacturing PMI remains around six points above its long-run average.

Germany factory orders (Thursday): We expect German factory orders to increase 2.3% m-o-m in May following a 2.1% decrease in April. A climb in factory orders would be consistent with Germany’s recent robust PMI reports.

Germany industrial production (Friday): We expect German industrial production to show an increase of 0.2% m-o-m in May following a strong increase in April. An outcome in line with our expectations would bring the average IP level for Q2 about 1.4% above the average for Q1 indicating a positive contribution from the industrial sector to Q2 GDP.

UK industrial production (Friday): We expect a small rise in manufacturing output in May, though recent trends in the CBI and PMI indicators suggest upside risks. Base effects pushed down on the annual rate of growth of both industrial and manufacturing production in April, but that is set to reverse in May and a rise in the annual rate is forecast thanks in part to a weak May reading last year. 

UK trade (Friday): The goods trade deficit fell by £1.7bn between March and April, entirely explained by the improvement in the non-EU portion of the deficit. A rise in underlying export volumes and a fall in import volumes dominated the deterioration in the terms of trade (export prices fell, import prices rose) during the month. We expect some rebound in the deficit in May, but more generally net exports should improve looking further ahead thanks to strong overseas demand, weaker domestic demand and lower sterling.