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Trading Week Outlook: Aug. 1 - Aug. 5

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), EEA, GBB, GOLD, JYN, UDN, USD
July 30, 2011 ( – As the August 2 deadline approaches, the week ahead will keep traders focused on the U.S. debt ceiling deadlock, coupled with four interest rate announcements from major central banks and the all-important U.S. Non-Farm Payrolls report which could offer a glimpse of hope from the U.S. labor market. 

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. ISM Manufacturing Index, a leading indicator of industrial activity, where a reading above or below 50 is the dividing line between economic expansion and contraction, Mon., Aug. 1, 10:00 am, ET.

The U.S. manufacturing sector is forecast to register another month of expansion with an ISM index reading of 55.5 in July from 55.3 in June, but a move back towards 50 would be an indication of a loss of momentum in industrial activity.   

2.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Aug. 2, 12:30 am, ET.

While the market has recently begun to price a rate cut, the Reserve Bank of Australia’s latest hawkish statement, along with higher-than-expected inflationary pressures in the second quarter, have reduced the odds of reduction in the benchmark rate. Although current conditions do not create any urgency to change monetary policy and the bank is expected to keep rates at 4.75% in August, policy makers could leave the door open to “further tightening” that “would be necessary at some point.”

3.    USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- an indicator of inflation preferred by the Federal Reserve, Tues., Aug. 2, 8:30 am, ET.

The Fed’s preferred inflation gauge, the core PCE Index which excludes food and energy costs, is expected to show subdued inflationary pressures with the index increasing by 0.2% m/m in July from 0.3% m/m in June. Consumer spending in the U.S. is forecast to register a small increase by 0.1% m/m in July, compared with 0.0% m/m in the previous month.

4.    USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a leading indicator for the outcome of the monthly non-farm payrolls, Wed., Aug. 3, 8:15 am, ET.

Following the stronger-than-expected 157K new jobs created in June, the private sector payrolls are forecast to see a smaller increase by up to 110K in July. An even lower than expected number could add to the market’s growing concerns about the state of the U.S. job market.

5.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions in the services industries: agriculture, mining, construction, transportation, communications, wholesale trade and retail trade, Wed., Aug. 3, 10:00 am, ET.

Activity in the U.S. services industry is forecast to expand for another month to 53.7 in July from 53.3 in June.   

6.    GBP- Bank of England Interest Rate Announcement, Thurs., Aug. 4, 7:00 am, ET.

The Bank of England’s August meeting would be likely to bring more of the same- no change in the existing accommodative monetary policy as the benchmark rate is left at the low 0.50% level. With the U.K. economy growing at a slower pace in the second quarter of 2011, there is an increased probability that some Monetary Policy Committee members might renew the discussion for additional quantitative easing. The GBP could see selling pressure mounting if the odds of expansion in the bank’s Asset Purchases Program increase exponentially.

7.    EUR- European Central Bank Interest Rate Announcement, Thurs., Aug. 4, 7:45 am, ET.

With inflationary pressures staying elevated throughout the summer, the European Central Bank could maintain its inflation-fighting stance despite of the EU debt crisis. However, after the two 25 bps rate hikes to 1.50% in the benchmark rate have managed to bring inflation a bit lower in July, the European Central Bank might decide that it is time to pause in August. Although the market is expecting another rate hike by the end of the year, a less hawkish ECB statement followed by a more upbeat U.S. Non-Farm Payrolls report could become supportive of a USD relief rally, especially if the debt ceiling deadlock in Washington comes to an end. 

8.    JPY- Bank of Japan Interest Rate Announcement, Fri., Aug. 5, around 12:00 am, ET. 

The Bank of Japan is not expected to change its accommodative monetary policy, but as the U.S. dollar continues to grind lower against the yen and approaches its post World War II lows, all eyes will be on Bank of Japan’s next move, which could include a currency market intervention as a result of the recent “one-sided moves of the yen”. 

9.    CAD- Canada Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Fri., Aug. 5, 7:00 am, ET.   

The Canadian economy is forecast to add up to 20,300 new jobs in July, a slower job creation compared with the 28,400 jobs in June, while the unemployment rate stays unchanged at 7.4%.     

10.    USD- U.S. Non-Farm Payrolls and Employment Situation Report, one of the most important indicators of economic health, measuring the number of new jobs created or lost in the world’s largest economy, Fri., Aug. 5, 8:30 am, ET.   

After two dismal Non-Farm Payrolls reports which confirmed the Fed’s concerns about the “frustratingly slow” pace of recovery, we could see a bit more optimistic employment data with consensus forecasts expecting the U.S. economy to add up to 85K jobs in July from only 18K in June. The unemployment rate could remain stubbornly high at 9.2% as a daunting reminder of the lack of significant improvement in the U.S. job market. A weaker-than-expected employment report could reinforce the Fed’s view of keeping rates low for “extended period” and maintaining its accommodative monetary policy, and could put additional pressure on the USD. On the other hand, a more upbeat U.S. Non-Farm Payrolls data could become supportive of a USD relief rally, especially if the U.S. averts a credit rating downgrade and the debt ceiling deadlock in Washington comes to an end.