The Trading Week: May 2nd – May 6th, 2011
Following the Fed’s decision to keep rates low for “extended period” which has given the green light for further U.S. dollar weakness, in the week ahead the market’s attention will shift to the monetary policies of the Bank of England and the European Central Bank, coupled with a potentially weak U.S. Non-Farm Payrolls report which could offer a reminder of why the FOMC is in no hurry to tighten credit anytime soon.
In preparation for the new trading week, here is a list of 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., May 2, 10:00 am, AND.
The U.S. manufacturing sector is forecast to register another month of expansion, but the ISM index could register a slight pullback to 60.1 in April from 61.2 in March.
2. AUD – Reserve Bank of Australia Interest Rate Announcement, Tues., May 3, 12:30 am, AND.
Inflation in Australia jumped by 1.6% in Q1 2011- the largest increase since 2006. The Reserve Bank of Australia is forecast to keep the benchmark rate unchanged at 4.75% at this meeting, but rising wages and consumer prices could continue to fuel speculation of an impending rate hike in the near future.
3. EUR – Euro-zone Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Wed., May 4, 5:00 am, AND.
Consumer spending in the Euro-zone is expected to increase by 0.2% m/m in March after dropping by 0.1% in February. However, following the unexpected decline in German retail sales, there is a potential for a disappointment with this report.
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., May 4, 8:15 am, AND.
The private sector payrolls are forecast to register a small increase by up to 202K in April from 201K in March, still well below the strong December reading of 247K.
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., May 4, 10:00 am, AND.
Activity in the U.S. services industries is expected to expand for another month to 57.5 in April from 57.3 in March.
6. GBP – Bank of England Interest Rate Announcement, Thurs., May 5, 7:00 am, AND.
Will they or will they not raise rates this time around? Each month we go through this drill and month after month the Bank of England has decided to sit on the sidelines. But things could be different, if not at this meeting, at least at upcoming ones, especially if the recent U.K. GDP data has managed to reassure the Monetary Policy Committee that the economy’s return to growth in the first quarter of 2011, after contracting in Q4 2010, creates an appropriate environment to accommodate the long-awaited by the markets rate hike. An increase in the benchmark rate could serve as a catalyst for further GBP strengthening, while another month of “sit and wait” decision by the Bank of England could trigger profit-taking of GBP long positions.
7. EUR – European Central Bank Interest Rate Announcement, Thurs., May 5, 7:45 am, AND.
With consumer prices well above the 2% comfort level, the European Central Bank has been very clear about their goals to keep inflation in check and to make sure that “second-round effects do not materialize”. This is the kind of language that has been and could continue to keep the EUR well-bid ahead of the meeting. However, although the ECB is expected to raise rates another time or two this year, policy makers could decide that the prudent thing to do at this meeting would be to maintain the benchmark rate unchanged at 1.25% following last month’s rate hike. If such decision is coupled with a less hawkish ECB statement, a welcomed price correction of the euro’s gains could get underway.
8. USD – U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., May 5, 8:30 am, AND.
Economists estimate that to indicate a significant decline in unemployment jobless applications would need to fall to 375K or below, but in recent weeks the jobless claims have been moving further away from this important figure. First-time applications for unemployment benefits are forecast to reach 419K from 429K in the previous week.
9. CAD – Canada Employment Situation and Unemployment Rate, the main gauge of employment trends and labor market conditions, Fri., May 6, 7:00 am, AND.
The Canadian economy unexpectedly lost 1,500 jobs in March, but is forecast to recover by adding up to 15,100 new jobs in April, as the unemployment rate stays a the 7.7% level.
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., May 6, 8:30 am, AND.
Following a sequence of several positive months for the U.S. lab market, the economy is forecast to add up to 193K new jobs in April- lesser than the March reading of 216K. Slower jobs creation coupled with the recent U.S. GDP report, which showed the U.S. economy cooling off in Q1 2011, could reinforce the Fed’s decision to stay accommodative for “extended period”. Although the unemployment rate is expected to remain unchanged at 8.8%, a weak jobs report could aggravate an already hostile environment for the U.S. dollar
