The Week Ahead: Will the ECB Raise Interest Rates?

The market closed higher on the week, thanks to a better than expected Employment Situation Report on Friday. The report indicated that 20,000 jobs were lost in April, which was better than the 75,000 economists expected, according to Bloomberg’s survey. Also, the unemployment rate fell to 5.0%, from 5.1% in March.

Unfortunately, the unemployment rate misses the fact that most people are not generally lazy. The number of people working part-time for economic reasons, meaning they or their spouse probably lost their full-time job, increased by 306K in April; and it measured 849K more than a year ago. These under-employed individuals, while not considered jobless, are certainly having a tougher time making ends meet. Thus, the data offers a falsely positive indicator for the near-term economy. Even so, the growth in Q1 GDP reported earlier last week was also better to see than contraction would have been, and gave stocks reason to seek higher ground.

Tax rebate checks have started rolling out and offer Americans a chance to catch their breath. If the government’s other election-year actions help the economy gain traction before too long, we’ll have to offer them kudos for staving off a deeper economic downturn than would have resulted otherwise.

The Week Ahead

This week contains an important barometer of the retail industry, as well as noteworthy news from Europe.

On Tuesday, pay attention to the weekly same-store sales report from the International Council of Shopping Centers. Last week’s report showed growth of 0.9%, but the week before that posted the first year-over-year decrease in our memory, as sales fell 0.7%. Just last year, sales growth was running at a pace of 2%-3%.

On Thursday, the Chain Store Sales Report for the month of April is likely to offer further verification for what we expect will be an ongoing deterioration of the retail sector in 2008. Supporting anecdotal evidence has been mounting, with news last week that Home Depot (NYSE: HD) would close 15 stores. Also, we learned last week that the retail trade industry shed 27,000 jobs in April. Thus, we expect April’s Chain Store Sales will offer good reason for concern and keep the shares of the poorest performing retailers from participating in general market ascension.

Last week’s spring economic forecast published by the European Union brought Europe’s inflation concerns to the fore. Anyone who watches Greek/American television, like me, knows all about the mania in Greece and Europe concerning rising costs. Greek/Americans with travel plans are certainly working the calculator these days as well, and watching the likelihood of this year’s trip dwindle as the euro strengthens against the dollar.

This week, the ECB might put its money where its mouth is and raise European interest rates as it battles the inflation enemy. The ECB and Bank of England will announce their respective rate decisions on Thursday morning. A rate increase would almost surely prove damaging to the dollar.

Of the slew of earnings reports scheduled for this week, we expect you’ll find interest in: Monday – Goldcorp (NYSE: GG), Pilgrim’s Pride (NYSE: PPC); Tuesday – Churchill Downs (Nasdaq: CHDN), Cisco Systems (Nasdaq: CSCO), Fannie Mae (NYSE: FNM), UBS (NYSE: UBS); Wednesday – Croc’s (Nasdaq: CROX), Total S.A. (NYSE: TOT); Thursday – American International Group (NYSE: AIG), Coca-Cola Hellenic Bottling (NYSE: CCH), Priceline.com (Nasdaq: PCLN); and Friday – Allianz S.E. (NYSE: AZ).

Comments

[genco]

if the ecb raiss rates this week euro land will go into a contaction in about 8 months. the know this. that said, these guys make a career of getting it wrong. should be interesting. G

[User 143167]

No. There should be laws inslated to limit the central banks' mandate to only one, which is to control inflation.
It is a dilusion that loose monetary policy can spur economic growth.