By FXEmpire.com
US and European Market Perspectives for the Week of April 23rd
Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row The health of the US economy and prospective Federal Reserve policy will dominate global market influences next week. By far the two biggest factors will be the FOMC on Wednesday and the 2012Q1 GDP report on Friday. This will be one of the biggest FOMC meetings of the year in that full staff projections will be updated, and the FOMC members provide their updated projections for the fed funds target rate. The risk here is toward modest upward revisions to growth and inflation forecasts, and a marginal tilt toward earlier hikes in the target rate by some members. We do not, however, expect any shift in the Fed’s guidance toward no rate changes until the end of 2014 as per the opinions expressed by the power-weighted Fed members including Bernanke’s #2 Janet Yellen and NY Fed President William Dudley. It is also unlikely that the Fed will provide any changed references to additional stimulus at this juncture. Chairman Bernanke will host a full press conference on Wednesday at which we would expect him to address the issue of growth sustainability given the disappointing tone of the recent flow of data in job markets, manufacturing, and housing. Friday’s GDP report is expected to register a slower pace of growth at 2.5% compared to the 3% pace of the prior quarter, but not everyone is convinced of that and inventory contributions to growth represent one of the bigger uncertainties after inventories contributed half of the gain to growth in Q4. Other key data points include the Conference Board’s consumer confidence gauge on Tuesday that may soften due to equity market volatility and softening job markets. New home sales are not expected to break from a flat trend on Tuesday, and a hat trick is performed with the Richmond Fed’s manufacturing survey also due out that day following what has thus far been a disappointing tone to manufacturing surveys so far this month such as Empire and the Philly Fed. Durable goods orders are expected to decline on Wednesday due to lower aircraft and vehicle orders, but the ex-transportation component may be more resilient. The US auctions 2s and 5s next week.
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European markets may not lead global influences on the market tone next week but they’ll play a significant role nonetheless. The firstround of French Presidential elections occurs on Sunday and the polls have incumbent. President Nicolas Sarkozy and his challenger Francois Hollande running neck and neck with a small edge to Hollande, but the polls have Hollande sharply leading for the second round on May 6th. Risks to French bonds (and perhaps peripheral bonds) may be represented by the sharp difference between Hollande’s growth focus over austerity measures and the fact that Hollande has already stated that he does not support the EU fiscal compact. Hollande believes the ECB should lend directly to governments and not perhaps indirectly through loans to banks such as via the LTRO’s two three year funding tranches. Scotia expects the UK economy to escape the technical definition of a recession marked by two back to back quarterly contractions when the GDP figures land on Wednesday, but only marginally so. We’re also in the middle of a round of fresh global manufacturing figures that will help update our perspectives on whether global momentum is waning. Key in this regard will be manufacturing (and service sector) purchasing manager indices to be released on Monday and Germany’s will get particularly close attention. Data risk is rounded out by German inflation on Thursday and EC confidence measures that same day. Auctions will occur in each of Spain, Italy and Germany.
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Originally posted here
