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The Trading Week: Mar. 7 - Mar. 11

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), EEA, GBB, GOLD, JYN, QQQ, UDN, USD
Mar. 5, 2011 ( – In the aftermath of a cautiously optimistic employment report, the trading week ahead will bring a sequence of U.S. consumer spending and sentiment data, along with two major European events- the Bank of England interest rate announcement and the EU Summit, which could have a significant impact on the future direction of the pound sterling and the euro. 

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.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Mar. 9, 3:00 pm, ET. 

With the Prime Minister of New Zealand hoping for a reduction of interest rates because of “virtually no growth for the current financial year” and the market aggressively pricing such expectations, the Reserve Bank of New Zealand could deliver a rate cut by 0.25%, bringing the benchmark rate to 2.75% from 3.0%. If the central bank does not open the door to further rate cuts, the New Zealand dollar could find an opportunity to correct some of its recent losses.  

2.    JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Mar. 9, 6:50 pm, ET. 

The final revision of the Q4 GDP should confirm the preliminary estimate which indicated that the Japanese economy contracted by 0.3% q/q in the fourth quarter of 2010.

3.    AUD- Australia Employment Situation and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Mar. 9, 7:30 pm, ET.

Recovery and rebuilding efforts following the floods in Queensland could continue to stimulate job creation “down under” as the Australian economy adds up to 21.5K jobs, lesser than the 24K new jobs created in the previous month. The unemployment rate is forecast to remain unchanged at 5.0%.  

4.    GBP- U.K. Industrial Production and Manufacturing Output, the main gauges of industrial activity measuring the output of factories, mines and utilities, Thurs., Mar. 10, 4:30 am, ET. 

The U.K. industrial activity is forecast to rise by 0.5% m/m in January- same as the 0.5% m/m reading in the previous month, while the manufacturing output picks up the pace by 0.8% m/m, recovering from the 0.1% m/m drop in December. 

5.    GBP- Bank of England Interest Rate Announcement, Thurs., Mar. 10, 7:00 am, ET.

Three Monetary Policy Committee members voted for a rate hike at the last meeting, while the Bank of England Governor Mervyn King called raising the benchmark interest rate as a gesture to fight inflation “self defeating”. The big question is who will win- the Governor or the “rate hawks”? Making the right decision on future monetary policy could become an even more difficult proposition, considering the potential threat of stagflation- stubbornly high inflation coupled with possible economic slowdown on rising oil prices and on the U.K. government’s massive spending cuts. Although the well-known hawks are expected to vote for a rate hike once again, the majority of the MPC members would be likely to decide to keep the status-quo for another month, maintaining the benchmark interest rate at the record low level of 0.5%. The GBP could stay supported ahead of the meeting, but if there is no announcement of a rate hike and if there aren’t more MPC members to join the hawkish camp, we could witness some unwinding of long GBP positions.   

6.    USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Mar. 10, 8:30 am, ET.

Last week’s jobless claims report registered the biggest drop in first-time applications for unemployment benefits since May, 2008. Initial jobless claims fell to 368K for the week ending February 26, below the 375K “magic number” estimated by economists to indicate a significant decline in unemployment. Forecasts are pointing to another positive reading of 673K for the week ending March 5.    

7.    CAD- Canada Employment Situation and Unemployment Rate, the main gauges of employment trends and labor market conditions, Fri., Mar. 11, 7:00 am, ET.

The Canadian economy is expected to add up to 32K jobs in February, lower than the 69.2K new jobs created in the previous month. The unemployment rate is forecast to pull back to 7.7% from 7.8% in January.   

8.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Fri., Mar. 11, 8:30 am, ET.

Consumer spending in the U.S. is expected to pick up the pace with retail sales rising by 0.5% m/m in February, up from 0.3% m/m in January.    

9.    USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Mar. 11, 9:55 am, ET.

The U.S. consumers are forecast to remain optimistic for another month as the preliminary estimate of the consumer sentiment index reaches 77.3 in March, slightly lower than the 77.5 reading in the previous month.  

10.     EUR- European Union Summit, a meeting of EU leaders to discuss the impact of the unrest in North Africa and the Middle East, as well as the debt crisis and economic issues, Fri., Mar. 11, All Day Event.   

Although the main focus of the EU Summit will be the turmoil in Libya and the Middle East and its impact on the economy, we could also see discussions on how to contain the debt crisis, including possible expansion of the European Financial Stability Facility fund. With the 5-year CDS on Portuguese sovereign debt back on the rise and debt obligations coming due for Spain and Portugal, should the summit fail to deliver an agreement on permanent solutions to stop the debt crisis from spreading, the euro could suffer the consequences.