By FXEmpire.com
While there are significant forms of data risk in European economies next week, the prime market risk will continue to be represented by Greek worries. To that effect, following this weekend’s G8 meeting at Camp David, expect the risk of more detailed thoughts on how Germany and France might stimulate growth agendas in Greece and perhaps at home.
There is room for cautious optimism toward Greece should the Troika liberalize the terms of its aid package while Germany and France move toward funding growth initiatives in Greece that may provide Greek politicians with cover before the electorate next month. At this point, however, we have to admit that developments are not favorable to this view.
The consensus of economists is expecting the UK to slip into technical recession when Q1 GDP is released on Thursday in one of the week’s key releases that will collectively put the UK economy in the spotlight throughout the week. That is likely to be preceded by a weak retail sales report for April on Wednesday following the large gain the prior month.
UK CPI figures on Tuesday should show moderating inflation with the year-over-year rate expected to drop to 3.3% and thus continue the descent from the 5.2% recent peak in September. Sandwiched in the middle of this will be further detail on the dialogue at the BoE over whether to further expand its asset purchase target when minutes to the May 10th BoE Monetary Policy Council meeting are released on Wednesday. There are also three sets of Euro zone releases that could sway markets.
Of greatest significance are the manufacturing sector purchasing manager indices (PMIs) especially for Germany (Thursday). The May PMI is expected to continue to show a contracting manufacturing sector in Germany but this lies at odds with recent strength in German factory orders. German business confidence will help us determine whether the flattening in the IFO survey since February risks turning toward a negative confidence shock given the tone of developments into May.
US markets will be comparatively quiet. A light release calendar will be focused upon regional manufacturing surveys and housing data. After a solid print for the Empire manufacturing survey that was followed by a sharply disappointing Philly Fed print
Durable goods orders for April will likely come in soft partly given a marked slowdown in airplane orders. Boeing orders sky rocketed to 237 in February and then fell to a still-respectable 53 in March before coming in at only 4 orders in April. To date in 2012, only two airlines have accounted for about 80% of Boeing’s orders. That should put downside risk to total headline orders unless the sharp drop in total durable goods orders the prior month poses a soft enough base effect off of which to post growth in core orders excluding transportation. Auto orders may, however, continue to rise as an offsetting upside risk.
It’s also a key week for housing data, with existing home sales expected to rise and thus follow pending home sales higher once the paperwork has been settled. New home sales might also face upside. What is very recently encouraging about US housing markets is that, whereas the rise in home building over the past year had been almost exclusively focused upon building for the multiple rental market, an improvement in home buyer confidence was reflected in the fact that the latest data showed a gain in single housing starts for the buy-to-own segment. It’s just one month’s data, but we were encouraged to see this development.
Jobless claims will continue to be monitored as the data closes off the nonfarm reference period such that the trend in claims will be used to firm up perspectives on the next nonfarm call
Asian markets will offer two possible influences upon the global market tone next week. One will be the release of the ‘flash’ preliminary private sector version of the manufacturing sector’s purchasing managers’ index. The prior month’s reading still pointed toward contraction, but barely so and by a smaller degree.
That stands in contrast to the state’s manufacturing PMI gauge that has swung from a contractionary signal last November toward a mild expansion since then.
Secondly, the Bank of Japan holds its policy meeting on Tuesday and Wednesday. At issue is whether additional monetary stimulus will be provided to counter fiscal drag. The country has prematurely engaged in fiscal belt tightening in the past, only to then encounter persistent economic weakness, and the BoJ risks being forced into providing more stimulus by the domestic debate over whether or not to raise a sales tax from 5% to 10%.
A sales tax hike is intended to restrain the deterioration in Japanese public finances especially as it funds a 20 trillion yen reconstruction package oriented toward the Sendai region that was devastated by last year’s earthquakes, tsunami and nuclear mishaps.
The next day Japan releases CPI data that is flirting with deflation as the prior March report came in at 0.5% y/y on headline CPI and -0.5% on core CPI ex-food and energy. Thai GDP will be released into Monday’s markets and is expected to post a strong post-flooding snap back with 10% annualized growth that would reverse the entire 10.7% decline in Q4. That would be a bullish sign about the Thai economy’s temporary setback that, while unlikely to be repeated, would zero the clock in favor of ongoing growth later in the year.
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Originally posted here
