Following the approval of the Greek bailout package, in the week ahead, traders will pay close attention to the second round of the European Central Bank’s Long-Term Refinancing Operation in an effort to gauge the condition of European banks and the potential for future shocks to the financial system.
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. USD- U.S. Pending Home Sales, a leading indicator of housing market activity measuring pending contracts for home sales, Mon., Feb. 27, 10:00 am, ET.
Last week’s increase in new home sales is expected to be followed by a more upbeat pending home sales index which is forecast to rise by 1.1% m/m, compared with the 3.5% m/m drop in the previous month.
2. USD- U.S. Durable Goods Orders, an indicator of economic activity measuring orders for durable goods, Tues., Feb. 28, 8:30 am, ET.
The durable goods report is shaping up as a weak spot in the U.S. economic data throughout the week with orders declining by 0.8% m/m in January after rising by 3.0% m/m in December.
3. USD- U.S. Consumer Confidence, a measure of consumer confidence and outlook on the economy, Tues., Feb. 28, 10:00 am, ET.
Improving outlook of U.S. consumers is forecast to help the confidence index inch higher to 64.0 in February from 61.1 in the previous month.
4. EUR- European Central Bank LTRO- Long Term Refinancing Operation, Wed., Feb. 29, 5:00 am, ET.
The second round of the European Central Bank’s Long-Term Refinancing Operation (LTRO) will make available even more low interest 3-year loans to Euro-area banks, on top of the record high December allotment of 489 billion euro. The range of consensus forecasts for the size of the offering is extremely wide- from about 300 billion euro to as much as 1 trillion euro. Depending on the demand for this second round of cheap loans, the markets will try to assess the health and sustainability of European banks. The event could jeopardize the recent euro rally, especially if it spooks investor sentiment on concerns about the record expansion of the European Central Bank’s balance sheet and the ability of European banks to withstand future financial system shocks.
5. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Wed., Feb. 29, 8:30 am, ET.
The second estimate for the U.S. GDP in the fourth quarter of 2011 is expected to bring a downward revision from 2.8% q/a to 2.7% q/a. The report has the potential to become a risk event for the markets and could reduce risk appetite if the U.S. economy did not grow as much as expected in the final quarter of last year.
6. CHF- Swiss CPI- Consumer Price Index, the main measure of inflation, and GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., Mar. 1, 1:45 am, ET.
With the inflation gauge expected to spend another month into deflation territory with a reading of -0.7% y/y in January and the Swiss economy forecast to contract by 0.1% q/q in the fourth quarter of 2011 after growing by 0.2% q/q in Q3 2011, the odds will remain high that the Swiss National Bank might be forced into doing more to weaken its currency. The threat of deflation, the slowing economy, and the renewed strength of the franc could prompt new and bold action by the Swiss central bank, possibly as early as next week or at the bank’s next monetary policy meeting on March 15.
7. EUR- Euro-zone Flash HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Thurs., Mar. 1, 5:00 pm, ET.
Inflation would likely continue to be a non-issue for the European Central Bank which could steer further away from tightening monetary policy as consumer prices ease to 2.6% y/y in February from 2.7% y/y in January. The pullback in inflationary pressures could create a more comfortable environment for ECB policy makers to consider additional rate cuts if economic conditions deteriorate.
8. 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, Thurs., Mar. 1, 8:30 am, ET.
After staying flat in December, consumer spending is forecast to increase by 0.4% m/m in January, while the Fed’s preferred core PCE Index inches higher by 0.2% m/m.
9. 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, Thurs., Mar. 1, 10:00 am, ET.
The U.S. manufacturing sector is forecast to register another month of expansion with a reading of 54.5 in February, compared with 54.1 in the previous month. A sequence of upbeat U.S. economic data should be able to keep QE3 odds reduced ahead of the FOMC meeting on March 13.
10. JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Mar. 1, 6:30 pm, ET.
Deflation is expected to continue to loom over the Japanese economy with the consumer price index staying below 0% at -0.1% y/y in January, compared with -0.2% y/y in December.