The first trading week of 2012 will kick-start the New Year with a sequence of important data from both sides of the Atlantic, giving traders an opportunity to compare economic conditions in the U.S. and the Euro-zone, and to gauge the next moves by the Fed and the European Central Bank.
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. EUR- Euro-zone Manufacturing PMI- Purchasing Managers Index, a leading indicator of economic conditions in the Euro-zone measuring activity in the manufacturing sector of the economy, Mon., Jan. 2, 4:00 am, ET.
As more economists predict a “mild recession” in Q4 2011, the trend of Euro-zone weakness could continue with the manufacturing index staying in contraction territory for another month with a reading of 46.9 in December from 46.4 in November.
2. USD- U.S. ISM Manufacturing PMI- Purchasing Managers Index, a leading indicator of economic conditions in the U.S. measuring activity in the manufacturing sector of the economy, Tues., Jan. 3, 10:00 am, ET.
In contrast to the Euro-zone manufacturing, the U.S. manufacturing activity is forecast to register another month of expansion with a reading of 53.3 in December, compared with 52.7 in the previous month.
3. USD- U.S. FOMC Meeting Minutes, a detailed record of the Fed’s meeting offering insights on future monetary policy and economic outlook Tues., Jan. 3, 2:15 pm, ET.
The Fed has been very clear on where they stand on future monetary policy and the economy. Expect the minutes to confirm the Fed’s cautious economic outlook and the commitment to continue their accommodative monetary policy with QE3 ready to be deployed if economic conditions deteriorate or if the EU debt crisis takes a turn for the worse.
4. EUR- Euro-zone Services PMI- Purchasing Managers Index, a leading indicator of economic conditions in the Euro-zone measuring activity in the services sector of the economy, Wed., Jan. 4, 4:00 am, ET.
Yet another reminder of the slowdown in the Euro-zone economy could come from the Services PMI which is expected to stay below 50 with a reading of 48.3 in December from 47.5 in November .
5. EUR- Euro-zone Flash HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Wed., Jan. 4, 5:00 am, ET.
Focused on stimulating growth, inflation would likely continue to be a non-issue for the European Central Bank as consumer prices ease down to 2.8% y/y from the recent spike to 3.0% y/y.
6. USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Thurs., Jan. 5, 8:15 am, ET.
After rising to 206K in November, private sector payrolls are forecast to increase at a slower pace by up to 170K in December.
7. USD- U.S. ISM Non-Manufacturing PMI- Purchasing Managers Index, a leading indicator of economic conditions in the U.S. measuring activity in the services sector of the economy, Thurs., Jan. 5, 10:00 am, ET.
Unlike the Euro-zone, the U.S. services sector is expected to show resilience with an ISM non-manufacturing index reading of 53.1 in December from 52.0 in the previous month.
8. CHF- Swiss CPI- Consumer Price Index, the main measure of inflation preferred by the Swiss National Bank, Fri., Jan. 6, 3:15 am, ET.
Deflation could remain a threat to the Swiss economy and could prompt the Swiss National Bank to consider additional measures to weaken the franc with the consumer price index forecast to drop by 0.1% m/m and 0.4% y/y in December.
9. EUR- Euro-zone Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Fri., Jan. 6, 5:00 am, ET.
Consumer spending in the Euro-zone is expected to stay lackluster as retail sales decline by 0.2% in December following the 0.3% m/m increase in November.
10. USD- U.S. Non-Farm Payrolls and Employment Situation, one of the main indicators of U.S. economic conditions measuring job creation and unemployment, Fri., Jan. 6, 8:30 am, ET.
With the U.S. economic data demonstrating resilience throughout Q4 2011, it will be important for this trend to continue in order to keep QE3 odds reduced ahead of the Fed's first meeting for 2012 on January 24-25. The Non-Farm Payrolls report could instill more cautious optimism about the state of the U.S. labor market with the economy adding up to 150,000 jobs in December from 120,000 in November. However, the weak spot in the report could come from the unemployment rate which is forecast to inch a bit higher to 8.7% from 8.6% in the previous month. Should the weekly series of U.S. economic data remain positive, the USD could stay supported on expectations that the Fed might refrain from debasing the greenback further through additional quantitative easing.
Happy New Year!