By FXEmpire.com
After an eventful week, with the US reporting well below forecast on the all important monthly Nonfarm payroll report and the week topped off by French elections, what is in store this week?
The EU is being turned topsy turvy with the ouster of President Sarkozy and his leftist replacement Mr. Hollande who has already called for a renegotiation of the fiscal compact and for a more activist ECB. On these two points, it looks like the scope for change is very slim. Indeed, Germany already reminded the French that they want them to respect their agreement on the fiscal pact. Whatever happens there is sure to be fireworks in the eurozone in the upcoming days and weeks.
Thankfully, this is the middle of the month and the eco calendar is pretty thin. Last week, the eco calendar was well-filled, as usually during the first week of the month. Economic data came out mixed with the disappointing payrolls and nonmanufacturing ISM, while the manufacturing ISM and claims came out remarkably strong. Uncertainty remains therefore present.
This week, the eco calendar is light with NFIB Small business optimism, the weekly jobless claims, trade balance and University of Michigan consumer confidence.
After a remarkable rebound in the second half of 2011 and early this year, the NFIB small business confidence indicator weakened for the first time in seven months in March. The headline index made a fairly strong correction falling from 94.3 to 92.5, but a slight rebound is forecast for April. The consensus is looking for an increase from 92.5 to 93.0.
Thursday will be an exciting day starting off with the unemployment claims, especially after the sharp drop in the previous week. Initial jobless claims edged up at the start of April, probably at least partially due to the distortions around the Easter holidays. In the week ended the 28th of April, the claims finally dropped lower (from 392 000 to 365 000) but the consensus is looking for a slight uptick at the start of May. An increase from 365 000 to 370 000 is forecast
And leading to the trade balance which is forecast to show again a widening in the deficit. In February, the US trade deficit narrowed sharply, from $52.52B to $46.03B as imports dropped, while export growth slowed. In March, part of the narrowing will probably reversed as the trade deficit is expected to have widened from $46B to $50B.
Finally on Friday, University of Michigan consumer confidence is forecast to have weakened slightly in May. Since the start of the year, University of Michigan consumer confidence hovered broadly sideways around the 75-76 levels. For May, the consensus is looking for a slight decline from 76.4 to 76.2, but we believe that the risks are for a weaker outcome. The economic momentum seems to have slowed somewhat and uncertainty remains high. Recently we’ve seen a remarkable pattern in the Michigan consumer confidence indicator where the first estimate surprised on the downside, while final readings always showed a significant upward revision.
Despite the holiday-shortened trading week in Europe, the eco calendar was well-filled last week. Almost all economic data came out on the weaker side of expectations, with the downward revisions of the PMI’s especially worrying. The data provide further evidence that weakness is not only based in the periphery, but also in the core countries. After a poor first quarter of the year, there are not yet signs of improvement at the start of the second quarter, on the contrary…
This week, also in Europe, the eco calendar is thin with only some national industrial production data. It will be interesting to see whether these confirm the weakness seen in the business confidence indicators. Expectations differ widely across countries, but first signs from Spain were disappointing.
The markets will focus this week on elections, and debt, Spain and Italy will probably take center stage with Mr. Hollande and Chancellor Merkel in close second and then of course there is the ongoing Greek saga.
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Originally posted here
