3 Numbers To Watch: IT sentiment, UK CBI, US pending home sales

The trading week begins with updates on the mood in Italy’s manufacturing sector, followed by a report on sentiment in the UK retailing community via the CBI Distributive Trades Index. Later, the July report on the Pending Home Sales Index brings fresh data for evaluating the outlook in US housing.

Italy Manufacturing Sentiment Survey (08:00 GMT): The Eurozone’s economy is stabilising, according to last week’s flash estimate of the June purchasing managers’ index for the continent. The Markit Eurozone PMI Composite increased to just over the neutral 50 mark for the first time since January 2012. The advance offers “encouraging evidence to suggest that the euro area could — at long last — pull out of its recession in the third quarter,” says Markit’s chief economist (pdf). If so, today’s update on manufacturing confidence in Italy, Europe’s third-largest economy, deserves attention for testing the upbeat news in the latest Markit report.

For the moment, the trend in industrial activity in Italy looks encouraging. The manufacturing sentiment index rose in the June update to 90.2, the highest level in over a year, according to Istat, Italy’s national statistics institute. A modest upturn in recent months in the country’s industrial production index is also unfolding. If today’s report on confidence in manufacturing rises again, Markit’s optimism on the outlook for the Eurozone will have another source of bullish support. Italy's economy is still far from a picture of health, but on the margins it may be poised to post some improvement. If so, the macro headwinds in Europe may ease a bit.

UK CBI Distributive Trades Survey (10:00 GMT): This survey of retailers has offered little room for optimism lately, with the exception of the previous monthly update, which suggests the tide may be turning. The CBI Distributive Trades Index posted an increase in June for the first since last November. The upturn coincides with the recent news that retail sales advanced 0.9 percent in this year’s second quarter versus the previous quarter. That’s a decent acceleration from Q1’s 0.6 percent pace.

Recent data generally has been looking increasingly friendly for consumer spending, and for the British economy overall. Indeed, second-quarter GDP increased at twice the pace versus Q1’s gain. Last week’s update inspired UK Chancellor George Osborne to declare that the economy “is on the mend.” That description certainly applies to Q2, but does the trend have legs for Q3? Today’s CBI data point for July offers an early clue.

US Pending Home Sales Index (14:00 GMT): The unexpectedly weak report on housing starts for June rattled nerves in terms of the outlook for residential real estate. Nonetheless, the darkest fears for this sector still look excessive. The June report on existing home sales was down a bit last month, but the median price of homes continues to increase. Meanwhile, Friday’s final number on the University of Michigan’s widely followed consumer sentiment index rose to a six-year high in July.

Nonetheless, higher mortgage rates in recent months seem to be taking some of the wind out of the positive housing momentum. Today’s update on the Pending Home Sales Index, a leading indicator for this sector, will provide new intelligence on what to expect for the near term. In the June report, this index rose to its highest level since December 2006, reflecting a positive trend in the number of signed contracts. But with existing home sales dipping a bit in July, the pending home sales number for this month is likely to follow suit, although this may be a pause that refreshes.

The national average of the 30-year conventional mortgage rate has topped out lately around the 4.5 percent range, which is still quite low in historical terms. Although that’s up from around 3.5 percent in May, the fact that the price of financing home purchases has stopped climbing is a positive. Interest rates are destined to rise, of course, but how fast and how soon they rise will make a big difference for housing’s outlook. For the moment, cautious optimism is still warranted. Today’s update will tell us if that’s still a reasonable view.