May 12 2013

May 12, 2013 ( – Economic growth or the lack there of will be the themes of the week ahead as traders eye the GDP estimates from the euro-area and Japan and determine whether the euro-zone has managed to turn a corner in the first quarter of the year.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    USD- U.S. Retail Sales, an important gauge of consumer spending measuring sales at retail establishments, Mon., May 13, 8:30 am, ET.

Consumer spending in the U.S. could remain subdued for a second month in a row with retail sales down by 0.3% m/m in April, following the 0.4% m/m drop in March. However, some optimistic forecasters predict a 0.1% m/m increase in retail sales. The USD could benefit from a more upbeat economic data that will raise the odds that the Fed could consider reducing the size of its monthly asset purchases if economic conditions continue to improve.

2.    EUR- Euro-zone ZEW Economic Sentiment Index, a leading indicator of economic conditions measuring the outlook of financial experts, Tues., May 14, 5:00 am, ET.

Declining more than expected to 36.3 in April, the ZEW index is forecast to bounce a couple of points higher with a reading of 38.5 in May. Should the index disappoint once again and send a signal that the economic outlook for the euro-area remains gloomy, the EUR could stay under pressure as the market prices expectations that the European Central Bank might ease monetary policy further.

3.    GBP- U.K. Jobless Claims and Unemployment Rate, the main gauges of labor market conditions measuring claims for unemployment benefits and rate of unemployment, Wed., May 15, 4:30 am, ET.

Jobless claims in the U.K. dropped by 7,000 in March and are forecast to register a smaller decline by about 3,000 in April, while the unemployment rate inches higher to 8.0% from 7.9% in the previous month. A better-than-expected jobs report would reduce the odds of more easing by the Bank of England and could lend support to the GBP.

4.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., May 15, 5:00 am, ET.

The main event of the week will bring the preliminary GDP estimate for the first quarter of the year and the report is not expected to show that the euro-zone economy was able to end its recessionary period. Forecasts point to a fourth consecutive quarter of contraction by 0.1% q/q in Q1 2013 from -0.6% in the last quarter of 2012. Provided that there are not any positive surprises from the GDP estimate, the EUR could be pushed further into the $1.20’s as the market begins to price even more aggressively expectations that the European Central Bank might be forced to consider additional rate cuts and unconventional monetary policy easing measures that could be announced as early as the bank’s June meeting.

5.    GBP- Bank of England Inflation Report, the central bank’s official analysis and outlook on inflation and the economy, Wed., May 15, 5:30 am, ET.

While the CPI remains above the Bank of England’s 2% target at 2.8% y/y, after reaching record high levels above 5% last year, inflation in the U.K. has subsided. If policy makers expect this trend to continue and forecast a “nascent recovery” in the months ahead, the report will reduce the probability of more QE by the Bank of England and could boost the GBP as an alternative to currencies whose central banks are committed to aggressive monetary policy easing.

6.    USD- U.S. Industrial Production, the main gauge of industrial activity measuring the output of factories, mines and utilities, Wed., May 15, 9:15 am, ET.

The slowdown shown by the manufacturing index in recent months could be reflected in the overall industrial production data with industrial output forecast to decline by 0.1% m/m in April, after rising by 0.4% m/m in March.

7.    JPY- Japan GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., May 15, 7:50 pm, ET.

With the yen in a free-fall since last November, the effects of the weaker currency are finally beginning to show in the latest economic data from Japan. The world’s third-largest economy is forecast to return to growth by 0.7% q/q in the first quarter of 2013 after the flat 0% q/q reading in the final quarter of last year. The negative JPY trend is still intact, but it would be interesting to see if better-than-expected economic data from Japan would start to be yen-supportive going forward, as the market reduces expectations of the need for even more aggressive easing measures by the Bank of Japan.

8.    EUR- Euro-zone HICP- Harmonized Index of Consumer Prices, the main measure of inflation preferred by the European Central Bank, Thurs., May 16, 5:00 am, ET.

In line with the preliminary estimate, inflation in May is forecast to decline to 1.2% y/y from 1.7% y/y in April. With the inflation gauge dropping further below the European Central Bank’s 2% target, the formation of deflationary pressures could become one of the main factors that could prompt the ECB into additional monetary policy easing.

9.     USD- U.S. Housing Starts, an important gauge of housing market activity measuring new home construction, Thurs., May 16, 8:30 am, ET.

After the stronger than expected rise to 1.04 million in March, housing starts could pull back to 980K in April, while building permits increase to 940K from 910K in the previous month.

10.    USD- U.S. Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., May 17, 9:55 am, ET.

Compared with the unimpressive 76.4 reading in the previous month, the preliminary estimate of the U.S. consumer sentiment index is forecast to show an improvement to 77.9 in May. The USD could continue to find strength if the weekly sequence of U.S. economic data does not disappoint and confirms that the recovery in the world’s largest economy is on the right track.