With the Fed reminding the markets that the option of more bond buying is still "very much on the table," in the week ahead traders will continue to gauge QE3 odds, while keeping an eye on the euro and the next move by the European Central Bank, as a sequence of important economic data from the Euro-zone and the U.S. culminates with the ECB interest rate announcement and the U.S. Non-Farm Payrolls report.
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 Flash HICP - Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Mon., Apr. 30, 5:00 am, ET.
With inflationary pressures forecast to subside to 2.5% y/y from 2.6% y/y, policy makers at the European Central Bank should feel comfortable enough to focus on stimulating growth and to consider additional easing.
2. USD - U.S. Personal Income and Outlays, a measure of consumer income and spending, released along with the PCE Price Index - the Fed's preferred gauge of inflation, Mon., Apr. 30, 8:30 am, ET.
Consumer spending is forecast to increase for another month, but at a slower pace by 0.4% m/m in March from 0.8% m/m in February, while the Fed's preferred core PCE Index inches higher by 0.2% m/m in March compared with 0.1% m/m in the previous month.
3. AUD - Reserve Bank of Australia Interest Rate Announcement, Tues., May 1, 12:30 am, ET.
As the Australian economy slows along with its Chinese counterpart and with inflation lower than expected, it would not be surprising to see the Reserve Bank of Australia announcing a 25bps rate cut, which will bring the benchmark rate to 4.0% from 4.25%. If coupled with a risk averse market environment, the anticipated rate cut should weigh on the Australian dollar.
4. USD - U.S. ISM Manufacturing Index, a leading indicator of economic conditions in the U.S. measuring activity in the manufacturing sector of the economy, Tues., May 1, 10:00 am, ET.
Although at a slower pace, the U.S. manufacturing sector is forecast to register another month of expansion with a manufacturing index reading of 53.0 in April from 53.4 in March.
5. EUR - Euro-zone Manufacturing PMI - Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Wed., May 2, 4:00 am, ET.
Contraction was already shown by the preliminary flash estimate and it is expected to be confirmed with the manufacturing index remaining firmly at 46.0 in April and in contraction territory for another month.
6. USD - U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., May 2, 8:15 am, ET.
Private sector job creation is forecast to slow with up to 175K jobs added in April compared with 209K jobs in March.
7. EUR - European Central Bank Interest Rate Announcement, Thurs., May 3, 7:45 am, ET.
The European Central Bank is divided on what to do next - buy more bonds, consider LTRO 3, or cut rates? As the threat of recession looms over the Euro-zone economy and with the EU debt crisis far from over, either one of the above options looks like it could be deployed soon, but neither one will be euro-positive.
8. USD - U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the U.S. measuring activity in the services sector of the economy, Thurs., May 3, 10:00 am, ET.
The expansion in the U.S. services sector is forecast to continue, but the ISM non-manufacturing index could see a small pullback to 55.5 in April from 56.0 in March.
9. EUR - Euro-zone Services PMI - Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the services sector, Fri., May 4, 4:00 am, ET.
In line with the weakness in manufacturing, the services sector of the Euro-zone economy is forecast to contract as the index stays below 50 for another month with a reading of 47.9.
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., May 4, 8:30 am, ET.
The latest NFP report started a sequence of weaker U.S. economic data which has fueled concerns that the U.S. economic and labor market conditions may be deteriorating. Although not enough at this point to force the Fed to "do more" (the code words for QE3), each new weak economic report from the U.S. will continue to raise QE3 odds which, in turn, will keep the pressure on the U.S. dollar. The U.S. economy is forecast to add up to 170K jobs in April, compared with 120K in March, while the unemployment rate remains unchanged at 8.2%.