The first trading week of Q2 2012 will kick-start the new quarter with a sequence of three monetary policy meetings by major central banks and a crucial U.S. Non-Farm Payrolls and Employment Situation report that will help traders to determine QE3 odds following the recent dovish remarks by the Fed Chairman.
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. JPY- Japan Tankan Index, a Bank of Japan quarterly survey of large and small businesses considered as the main indicator of economic conditions in Japan, Sun., Apr. 1, 7:50 pm, ET.
Repatriation flows at the end of the Japanese fiscal year and higher than expected core consumer prices have helped the yen recover some of its losses in recent months. A positive Tankan survey could lend additional strength to the yen with a manufacturing index reading of 0 in Q1 2012 from -4 in Q4 2011, while the non-manufacturing index also improves with a reading of 5 in Q1 2012 from 4 in Q4 2011.
2. USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Apr. 2, 10:00 am, ET.
The U.S. manufacturing and services indexes have managed to stay in expansion territory above 50 since December 2009 and this trend is forecast to continue as the U.S. manufacturing sector registers another month of growth with a reading of 53.3 in March compared with 52.4 in the previous month.
3. AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Apr. 3, 12:30 am, ET.
Despite of the mining boom, there have been signs of weakness in the economy and the labor market "down under", which if persistent, should raise the odds of additional rate cuts. However, the Australian central bank would be likely to keep the benchmark rate unchanged at 4.25% for the time being. Pressures on the Australian dollar could mount if the central bank signals an impending rate cut in the upcoming months.
4. EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Tues., Apr. 3, 5:00 am, ET.
It is already known and fully priced in from the preliminary estimates that the Euro-zone economy contracted by 0.3% q/q in the fourth quarter of 2011. But the market could get caught by surprise if there is a downward GDP revision, which coupled with the anticipated weakness in the Euro-zone manufacturing and services PMI reports next week could force the European Central Bank to take a more dovish stance at its April meeting, including opening the door to a potential rate cut if conditions continue to deteriorate in the near future.
5. USD- U.S. FOMC Meeting Minutes, a comprehensive record of the Fed's most recent monetary policy meeting containing an outlook on the economy and future monetary policy, Tues., Apr. 3, 2:00 pm, ET.
Expectations for more quantitative easing have made a comeback following the Fed Chairman Ben Bernanke's remarks last week and if there is a hint in the minutes report that QE3 may be only a matter of time, the U.S. dollar will feel the pressure.
6. EUR- European Central Bank Interest Rate Announcement, Wed., Apr. 4, 7:45 am, ET.
"To cut or not to cut" might be the most pressing question at the upcoming meeting of the European Central Bank. In March, inflation made a comeback on the bank's radar screen, but it may not stay there for very long with consumer prices forecast to ease again. Following the disappointing manufacturing and services PMI reports from Germany and the Euro-zone which have put into question the expectations of a Euro-zone recovery in the first quarter of 2012, lower inflationary pressures could also raise the odds that the European Central Bank may be forced to consider additional rate cuts in the near future. If this is what the market hears after the ECB meeting, it would be hard to see such expectations as euro positive.
7. USD- U.S. ADP- Automatic Data Processing Employment, a measure of private sector job creation and labor market conditions, Wed., Apr. 4, 8:15 am, ET.
After 216K jobs added in February, the U.S. private sector is forecast to create over 200K for another month with up to 209K new jobs in March.
8. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Wed., Apr. 4, 10:00 am, ET.
Although at a slower pace, the U.S. services sector is forecast to register another month of growth with a non-manufacturing index reading of 56.8 in March from 57.3 in February.
9. GBP- Bank of England Interest Rate Announcement, Thurs., Apr. 5, 7:00 am, ET.
The Bank of England's March meeting minutes surprised the markets with two Monetary Policy Committee members voting for additional expansion of the Asset Purchase Program. However, considering that the majority of the committee still does not share their view, the central bank should refrain from doing more quantitative easing for another month. The record low benchmark rate will also be maintained at the 0.5% level. As long as the Bank of England does not steer too far from the current course and the Fed doesn't "shock and awe" the greenback with a QE3 announcement, the GBP/USD pair should continue to do more of the same, fluctuating in its multi-month range where it has been stuck since last October.
10. USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Apr. 6, 8:30 am, ET.
Even though job creation is forecast to not be as strong as it was in the previous month, the positive trend in the U.S. labor market would be likely to continue with the economy adding another 200K jobs in March, compared with 227K in February, while the unemployment rate stays at the current 8.3% level. As long as the U.S. job market continues to demonstrate consistent improvement, the USD should benefit from reduced QE3 odds.