Will the Fed launch QE3? Ben Bernanke will provide the answer at the end of an all-important FOMC meeting. Beforehand, the German constitutional court will make its critical ruling about the bailout fund, in one of the most important weeks on the calendar. In addition, US inflation data and retail sales as well as rate decisions will also move the markets.Volatility made a big comeback, and will likely continue. Here is an outlook on the major events ahead.
Last week, Non-Farm Payrolls disappointed with a smaller than predicted gain of 96K jobs in August. Estimates were around 123K gain following positive US figures released a few days back. Despite the poor job addition, the unemployment rate unexpectedly declined to 8.1% from 8.3% in the preceding month, but this was thanks to the worst participation rate in over 3 decades. Nevertheless, QE3 isn’t a done deal. In Europe, the ECB’s bond buying plans (named OMT) were quite convincing. The German court’s approval should pave the way for a realization of these plans.
- Japan Current Account: Sunday, 23:50.Japan’s adjusted current account increased its surplus to 773.6 billion yen, beating forecasts for a surplus of 714.7 billion yen following 282.2 billion yen in the previous month. However on a yearly bases current account surplus reached 433.3 billion yen in June losing 19.6%. Exports contracted an annual 1.5% while imports slowed 1.2%. A smaller surplus of 390,000 billion id expected this time.
- US Trade Balance: Tuesday, 12:30. The US. trade deficit dropped to an 18 months low in June, contracted to $42.9 billion from $48 billion in May. Exports increased by 0.9% to $185 billion with improvement in automobile sales pharmaceuticals, and industrial machinery. However a slowdown in global markets could lower demand for US exports, resulting in lower experts. Deficit is expected to reach $44.2 billion.
- UK employment data: Wednesday, 8:30. The number of people claiming unemployment benefits in the U.K. dropped unexpectedly by 5,900 in July lowering unemployment rate to 8.0%, while economists expected a 6,000 increase. This improvement follows a small gain of1,000 in June indicating an improvement inUK’s labor market. A small increase of 100 claims is expected now.
- NZ rate decision: Wednesday, 21:00. The Reserve Bank of New Zealand maintained its official cash rate at 2.50% and didn’t alter its monetary policy from its June statement. The EU continues to pose downside risk to NZ economic outlook. Domestic demand is expected to grow moderately in the next few years. Rate is expected to remain at 2.50%.
- Switzerland rate decision: Thursday, 7:30. The Swiss National Bank (SNB) kept its target three-month Libor rate at 0.0%-0.25%. Inflation is expected to reach 0.5% in 2012 and weaken during 2013 to 0.3%. The global economy is expected to recuperate slowly from its lingering crisis which will affectSwitzerland’s economic growth for the rest of the year. No change is forecasted. Also the EUR/CHF is expected to remain intact at 1.20, one year after it was launched. No change is expected now. EUR/CHF has risen recently following the good news in Europe.
- US PPI: Thursday, 12:30. The Producer Price Index increased 0.3% in July, above predictions for a 0.2% climb, amid 0.5% growth in food prices. Meantime Core PPI gained 0.4% above the 0.2% increase forecasted. A further climb of 1.2% is anticipated.
- US Unemployment Claims: Thursday, 12:30. Initial jobless claims dropped more than predicted last week, down 12,000 claims from the preceding week, reaching 365,000. Economists expected a higher reading of 396,000m this low figure may indicate an improvement in the job market. A rise to 370,000 is forecasted now.
- US rate decision and press conference: Thursday. Decision released at 16:30. Staff forecasts at 18:00 and Bernanke holds his press conference from 18:15. Following the justification of previous quantitative easing and using the word “grave” to describe unemployment, many expect the Fed to announce QE3. Also the weak Non-Farm Payrolls strengthened this notion and hurt the greenback. However, this isn’t a done deal. Some recent indicators have shown improvement in the US economy, In addition, the ruling of Germany’s constitutional court just before the FOMC meeting begins is also critical. An approval from the court could ease the pressure on the Fed to ease. The Fed could opt for extending the guidance for low interest rates from “late 2014″ to mid or late 2015. This would be a compromise between hawks and doves. Unless the judges in Karlsruhe disappoint, extending the guidance has higher chances than outright QE3, which has “diminishing returns” as Bernanke previously said.
- US Federal Budget Balance: Thursday, 18:00. The US federal budget deficit increased less-than-expected in July reaching -69.6B, from -60.0B in the preceding month. Economists predicted federal budget balance to fall to -103.0B. A decline to -157.1B is expected this time.
- US inflation data: Friday, 12:30. Consumer prices remained unchanged during July, amid weaker energy prices largely offsetting increases in food, clothing and shelter. Analysts expected prices to climb 0.2% due to rising food prices. Meantime Core prices also increased less than predicted climbing 0.1% following four months of 0.2% increases. CPI is expected to gain 0.5% while core CPI is predicted to climb 0.2%.
- US retail sales: Friday, 12:30.U.S. retail sales jumped 0.8% in July well above predictions for a 0.3% rise. This was the first increase in four months, suggesting an improvement in the US the economy. Meanwhile core sales excluding autos, gasoline and building materials also increased 0.8% indicating improvement in business activity. Another increase of 0.7% is predicted in retail sales while a 0.6% gain is forecasted in the core sales.
- US UoM Consumer Sentiment: Friday, 13:55.University of Michigan Consumer Confidence beat the preliminary reading of 73.6 and a reading of 73.6 last month, rising to 74.3. Economic conditions figure rose to 88.7 after a preliminary reading of 87.6 and a July reading of 82.7. The economic outlook also improved rising to 65.1 after the preliminary reading of 64.5 indicating a positive trend in consumer sentiment. A further increase to 74.1 is expected now.