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Trading Week Outlook: Dec. 12 - Dec. 16

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), EEA, GBB, GOLD, JYN, UDN, USD
Dec. 10, 2011 ( – In the aftermath of the ECB rate cut and yet another EU Summit attempt to save the euro, in the week ahead all eyes will turn to the FOMC monetary policy meeting in search for the missing piece of the QE3 puzzle.

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.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., Dec. 13, 4:30 am, ET. 

Rising by 5.2% y/y in September, U.K. inflationary pressures have begun to subside to 5.0% y/y in October, and are expected to continue lower to 4.8% y/y in November. The pullback in inflation is in line with the Bank of England’s forecast and would be welcomed by policy makers set to continue the bank’s accommodative monetary policy, while keeping the door open to more quantitative easing if the economy weakens further.
2.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions and business expectations, Tues., Dec. 13, 5:00 am, ET.

Serving as a reminder of the deteriorating economic conditions in the Euro-zone, the ZEW economic sentiment index is forecast to register another drop with a reading -60.3 in December, compared with -59.1 in November.
3.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring the total receipts at retail establishments, Tues., Dec. 13, 8:30 am, ET.

Consumer spending is a major part of the U.S. economy and retail sales could demonstrate resilience with a second consecutive monthly increase by 0.6% m/m in November from 0.5% m/m in October.

4.    USD- U.S. FOMC- Federal Open Market Committee Interest Rate Announcement, Tues., Dec. 13, 2:15 pm, ET.

At the press conference following the last FOMC meeting, the Fed Chairman made it clear that all options are “on the table”, including a “third round of securities purchases, extending the period of record- low interest rates or being more specific about when rates would rise”. Although the Fed could keep the door open to QE3, the recent resilience of the U.S. economic data, which rules out a double dip, makes an announcement of another round of quantitative easing less likely to come at the December 13 meeting. As far as the record low rates, the Fed has already made a commitment to keep the status quo at least until 2013. For the time being, expect a continuation of the Fed’s accommodative monetary policy with QE3 ready to be deployed in case future economic conditions and the EU debt crisis take a turn for the worse. The USD might be able to attract some bids if the Fed puts QE3 on the back burner. 

5.    GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of employment trends and labor market conditions, Wed., Dec. 14, 4:30 am, ET.

Following the anticipated pullback in inflation, the U.K. employment report has the potential to become another risk event for the pound. Forecasts point to an increase in the amount of jobless claims by up to 17,000 in October from 5,300 in September, while the unemployment rate stays unchanged at 8.3%.

6.    JPY- Japan Tankan Index, Bank of Japan’s quarterly survey of large and small manufacturing and services companies, which serves as the main indicator of economic conditions in Japan, Wed., Dec. 14, 6:50 pm, ET.

The Japanese economic activity slowed significantly in Q2 2011 as a result of the devastating earthquake and tsunami but recovered in the third quarter, however the Bank of Japan’s benchmark survey is expected to underline some weaknesses with a manufacturing sector index reading of -2 from 2 in Q2 and a flat services sector reading of 1, same as the second quarter.

7.    CHF- Swiss National Bank Interest Rate Announcement, Thurs., Dec. 15, 3:30 am, ET.

With deflationary pressures mounting, the strong franc hurting exporters and the economy, and the euro incapable of appreciating beyond its recent range versus the franc, it would not be a surprise to see the Swiss National Bank forced into additional action to curb the strength of its currency. The "mystery" surrounding the next step of the SNB has managed to keep the euro above the minimum exchange rate target of 1.20 against the franc. However, it may be only a mater of time before the Swiss National Bank gives in to political pressure for much bolder measures, including raising the EUR/CHF exchange rate floor from 1.20 to 1.30.
8.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation, Thurs., Dec. 15, 5:00 am, ET.  

Despite of the stubbornly high inflation, fighting it has not been the current focus of the European Central Bank and the latest rate cuts were a testament to the bank’s new priority- stimulating economic growth in an effort to avoid a double dip. Although inflationary pressures in the Euro-zone are expected to remain unchanged at 3.0% y/y in November, same as the 3.0% y/y reading in October, expect the European Central Bank to continue to “look the other way”.

9.    USD- U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Dec. 15, 8:30 am, ET.

Throughout 2011, this weekly column has regularly mentioned 375,000 as the number to watch as a leading indicator of consistent improvement in the U.S. job market and future decline in the unemployment rate. Consensus forecast are pointing to a move higher to 389K, but with last week’s drop to 381,000, the jobless claims have registered a nine-month low and are approaching the 375K mark.   

10.    USD- U.S. CPI- Consumer Price Index, the main measure of inflation, Fri., Dec. 16, 8:30 am, ET.   

Inflation would probably remain a non-issue for the Fed with forecasts expecting a flat 2.1% y/y reading in the November Core CPI, which excludes volatile food and energy costs.