Following a better than expected, but not really a game-changing U.S. Non-Farm Payrolls report, the week ahead will continue to keep the markets on edge as investors react to the U.S. credit rating downgrade by S&P and remain unconvinced that the worst of the EU debt crisis is behind, while all eyes turn to the Fed’s monetary policy meeting and the prospects for QE3.
In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.
1. CNY- China CPI- Consumer Price Index, the main measure of inflation in the world’s second-largest economy, Mon., Aug. 8, 10:00 pm, ET.
The Chinese central bank might be prompted to continue their campaign of rate hikes in an attempt to curb inflationary pressures with consumer prices expected to remain elevated by 6.4% y/y in July, same as the June reading of 6.4% y/y.
2. GBP- U.K. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Tues., Aug. 9, 4:30 am, ET.
After the larger-than-expected drop in U.K. Manufacturing PMI, industrial activity in the U.K. is forecast to show a smaller increase by 0.4% m/m in June from 0.9% m/m in May.
3. USD- U.S. FOMC- Federal Open Market Committee Interest Rate Announcement, Tues., Aug. 9, 2:15 pm, ET.
With the U.S. economy slowing in the second quarter of 2011 and after a couple of months of dismal labor market data, the Fed is not going to be in any hurry to start tightening anytime soon and will keep rates in the record low target band between 0% and 0.25% for the rest of the year (possibly even until H2 2012). Moreover, as the U.S. is now on the path to fiscal austerity, the risk of additional economic slowdown might force the Fed into offering another round of quantitative easing. In other words, QE3 might rear its ugly head, after all, and we all know what QE1 and QE2 meant for the U.S. dollar…
4. GBP- Bank of England Inflation Report, the central bank’s official assessment on current inflationary pressures and outlook on future inflation, Wed., Aug. 10, 5:30 am, ET.
Inflationary pressures in the U.K. have pulled back to 4.2% y/y in June from 4.5% y/y in May, reducing the odds that the Bank of England will consider a rate hike in the near future. With the U.K. and the global economy losing momentum, if the Bank of England’s inflation report does not see a threat of rising inflation and if policy makers expect inflationary pressures to subside after peaking above 4%, the market could continue to push BoE rate hike expectations further into 2012.
5. AUD- Australia Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Wed., Aug. 10, 9:30 pm, ET.
As China, which is Australia’s top trading partner, slows and demand for raw material exports declines, the Australian economy could experience smaller job creation with up to 10,300 new jobs added in July, compared with 23,400 in June, while the unemployment rate remains unchanged at the low 4.9% level.
6. EUR- European Central Bank Monthly Bulletin on economic conditions, inflation and monetary policy, Thurs., Aug. 11, 4:00 am, ET.
In the aftermath of the European Central Bank’s decision to pause its campaign of interest rate hikes in August and to resume its bond-buying program, the monthly bulletin would likely highlight the factors prompting the central bank to make these decisions. It would be interesting to find out if the ECB will aim in the right direction by considering to buy not only Greek, Irish and Portuguese debt, but also Italian and Spanish bonds in an effort to calm the market’s fears of contagion from the EU debt crisis.
7. USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Aug. 11, 8:30 am, ET.
Still above the 375K level, below which economists estimate that jobless applications would need to fall in order to see a significant decline in unemployment, first-time applications for unemployment benefits are expected to reach 402K from 400K in the previous week.
8. EUR- Eurozone Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Fri., Aug. 12, 5:00 am, ET.
Despite the drop in the Manufacturing PMI, the eurozone industrial production could hold steady in July with a reading of 0.1% m/m, same as the 0.1% m/m increase in June.
9. USD- U.S. Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Fri., Aug. 12, 8:30 am, ET.
Consumer spending in the U.S. is forecast to improve as retail sales rise by 0.4% m/m in July from 0.1% m/m in June, while the core retail sales gauge, which excludes automobile purchases, also increases by 0.2% m/m in July from 0.0% m/m in the previous month.
10. USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Aug. 12, 9:55 am, ET.
The stock market rout, coupled with high food and energy costs, could continue to impact the U.S. consumer sentiment with the index forecast to inch lower to 63.3 in August from 63.7 in July.