Weighing The Week Ahead

Will the coming week – the thirteenth of the year – finally bring the Spring to the United States of America or will it act according to the ‘reputation’ of the number 13?

Only the real life action will determine that but the week is full of economic data release schedule that usually impacts the market strongly. So let’s assess their potential impact on the market. (This report will assess the economic data coming from the USA and the Euro Zone as they will have a greater impact on the markets compared to other country reports.)

The United States Of America

The USA has many important economic releases scheduled for the week.

  • Personal Spending
    • Monday is the day for Core Personal Consumer Expenditure Index, personal spending and personal income day. The economists are expecting the Core PCE to change for February by +0.1% from January. The personal spending and income estimates are for a change of +0.3% both of them.

    U.S. Personal Spending U.S. Core PCE Index

    • Market will be closely looking at these data as they will throw some light on FOMC’s decision to raise rates later in the year. The employment data is doing quite good and indicating an improving job-picture. But, the inflation data is not strongly moving towards Fed’s target of 2.0% inflation. A higher than expected spending and income data will fuel the speculation for an earlier than later rate hike this year. We are still in the camp that Fed will not raise rates this year or if it does than it will be in Q3/Q4.
  • Housing
    • Pending Home Sales and S&P/Case-Shiller Composite-20 HPI numbers will come out on Tuesday. The expectations are for +0.5% month-over-month increase in pending homes sales and 4.6% year-over-year increase in the S&P/CS HPI.

    U.S. Pending Home Sales U.S. S&P/Case-Shiller omposite HPI

    • This data will have impact on stocks of the housing sector, which is staging a nice rally and is outperforming S&P 500.
  • Employment
    • The big reports for the week relate to employment. Wednesday is for ADP Non-Farm Employment Change report.
    • Thursday will see Challenger Job Cuts and Unemployment Claims
    • Friday will see the Non-Farm Employment Change, Unemployment Rate and the Average Hourly Earnings report.

    U.S. average Hourly Earnings U.S. Non-Farm Payroll 12-Months Change

    • The general employment picture in the U.S. is shaping up well. The non-farm payroll jobs creation is on a healthy pace. The unemployment rate is expected to stay at 5.5%. The estimates for March are 251K new jobs addition. Any significant deviation from this estimate will move the market. The last four reported NFP jobs numbers were better than the estimates but the S&P 500 declined three times..
    • The market will be watching the Average Hourly Earnings numbers closely as that will give any indication about the spending potential of the workers, which impacts the inflation. Any uptick from the trend will fuel the speculations that the Fed will act sooner rather than later in raising the rates. The reverse will be true in the absence of an uptick.
  • ISM Manufacturing data will come out on Wednesday and the Trade Balance data on Thursday.

Euro Zone:

The Euro Zone has CPI, retail sales and PMI data scheduled for the week.

  • CPI
    • Germany and Spain will release CPI data on Monday. Italy and the EZ will release it on Tuesday. France, the other big economy, released its data on March 12.
    • The estimate for month-over-month change for German Preliminary CPI is +0.4%, a decline from last month’s +0.9%. The estimate for the Core CPI Flash Estimates for the EZ is +0.6%

Euro Zonce Core Flash CPI Estimates German Prelim CPI

  • Retail Sales
    • German Retail Sales data will come out on Monday and French Consumer Spending on Tuesday. The German retail sales is estimated to decline by -0.9% on month-over-month basis for February in comparison to a rise of +2.9% for January. The French Consumer Spending is expected to be +0.3% for February versus +0.6% for January.

French Consumer Spending German Retail Sales

  • PMI
    • Euro Zone Final Manufacturing PMISpain, Italy and the EZ will announce manufacturing PMI data on Wednesday. The expectations are 54.0 for Spain, 52.3 for Italy and 51.9 for the EZ. A reading above 50 indicates expansion of manufacturing activities.
    • The big guys, Germany and France announced it on March 24, so we have an idea how the data is shaping up. Still, Spain’s and Italy’s number will show us how the weaker economies are doing.
  • Unemployment
    • German Unemployment Change numbers will come out on Tuesday
    • Italy and EZ’s Unemployment Rate will be released on Tuesday too.

The market will be looking for some sign of CPI stabilizing if not heating up. The deflationary pressures are real but they haven’t taken shape yet. ECB has announced the QE and will stick with it for its intended period but the inflation data will influence market’s assessment of the efficacy of ECB’s actions.
EUR/USD 27-March-2015

The major impact will be on euro. Worse than expected data will put a downward pressure on it whereas better than expected data will continue the recent bounce off the multi-year lows. In any case the upside will face many resistance zones. Chance of EUR/USD to stay above 1.1200 level for sustained period in the immediate future are low.

The European equity market has been on a tear for some time. Earlier in the month, SOXX 600 index, reached the pre-financial crisis high of near 401. SInce then it has retraced mildly. Chances of it resuming its upward trend are higher then it reversing the trend. However, it is at a level where some consolidation and/or minor pullback are quite likely. Only significantly bad or good economic data or monetary & fiscal policy decision will change that.

STOXX 600 - 27-March-2015

Greece and Ukraine are still hanging as Damocles’ Swords but the markets have more-or-less discounted their potential reasonably adverse impact. The operative word is ‘reasonable’. Before the Lehman Brothers’ collapse, the market had assessed its impact and was taking it into account. But the aftermath of Fed’s decision to not-bailout Lehman was not reasonable. Fed and market’s projections did not include the capital freeze and the breaking-of-the-buck.

We are of the opinion that though Grexit or Grexident will be unlikely, the market and governments are underestimating its impact. Anyway, there is nothing on the horizon that will drastically impact that either of these outcomes.

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