May 19 2013

May 19, 2013 ( – With the Bank of Japan’s announcement and the minutes of the Fed’s May meeting on the agenda, the week ahead will offer further insight into the future plans of these two major central banks and their unprecedented monetary policy easing efforts.

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

1.    GBP- U.K. CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of England, Tues., May 21, 4:30 am, ET.

Inflationary pressures in the U.K. are forecast to see a slight pullback to 2.7% y/y in April from 2.8% y/y in March. Although the CPI remains above the Bank of England’s 2% target, inflation has subsided significantly from last year and could continue to inch lower as the bank pointed in its latest inflation report.

2.    JPY- Japan Trade Balance, an important gauge of economic activity measuring the difference between imports and exports, Tues., May 21, 7:50 pm, ET.

The consensus forecasts point to another month of rising trade deficit by 621 billion yen in April from a deficit of 362.4 billion yen in March, despite of the significant devaluation of the yen since November, 2012. However, there may be a potential for a positive surprise as the Japanese economy managed to turn a corner and returned back to growth in the first quarter, while also registering a current account surplus. If the report fails to instill optimism and triggers concerns that economic conditions are not improving, the yen could remain under pressure on expectations that the Bank of Japan might be forced to step up their efforts to weaken the currency as a tool to stimulate export growth.

3.    JPY- Bank of Japan Interest Rate Announcement, Wed., May 22, around 12:00 am, ET.

As the impact of the Bank of Japan’s massive amounts of asset purchases begins to be reflected in the latest economic data which has registered better than expected readings, the Japanese central bank will probably not feel the need to do more at this point. Policy makers will be likely to reaffirm their open-ended commitment to aggressive QE until the 2% inflation target is in sight. A Bank of Japan not in a hurry to step up its easing efforts could trigger a long overdue correction of the yen’s losses.

4.    GBP- Bank of England Meeting Minutes, a detailed report of the bank’s latest meeting containing an outlook on monetary policy and the economy, Wed., May 22, 4:30 am, ET.

In recent months, the Bank of England has chosen to sit on the QE sidelines while other central banks have either continued or have resorted to additional monetary policy easing. The GBP has benefited from the Bank of England’s restraint and could continue to lure bids should the minutes confirm that the majority of policy makers see no urgency to increase the size of the Asset Purchase Program.

5.    USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Wed., May 22, 10:00 am, ET.

Following last week’s surprising drop in housing starts, we could witness a more upbeat U.S. housing market data with sales of existing homes forecast to increase to 4.99 million in April, compared with 4.92 million in March.

6.    USD- U.S. FOMC Meeting Minutes, a detailed report of the Fed’s latest meeting containing an outlook on monetary policy and the economy, Wed., May 22, 2:00 pm, ET.

At its May meeting, the Fed signaled that the size of monthly asset purchases may be reduced or increased depending on economic conditions. The minutes would probably confirm this stance, while echoing the Fed’s decision to stay on the QE course until the unemployment rate drops below 6.5% or inflation rises above 2.5%. The USD could see pressures rising if the report reassures the markets that the Fed’s open-ended quantitative easing is not going away anytime soon.

7.    EUR- Euro-zone Composite PMI- Purchasing Managers Index, a leading indicator of economic conditions measuring activity in the manufacturing and services sectors, Thurs., May 23, 4:00 am, ET.

The euro-zone economy is expected to continue to suffer from the chronic contraction in its manufacturing and services sectors as the Composite PMI stays in contraction territory below the 50 boom/bust line for another month with a reading of 47.0 in May from 46.9 in April. With the economy failing to return to growth in the first quarter of 2013, the report could weigh on the EUR by increasing the odds that the European Central Bank might be forced to announce additional monetary policy easing measures as early as the bank’s next meeting on June 6.

8.    GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Thurs., May 23, 4:30 am, ET.

In the first quarter of 2013, the U.K. managed to avoid a triple-dip recession with the economy growing by 0.3% q/q after contracting by 0.3% q/q in the final quarter of last year. The revised reading is expected to be in line with the preliminary estimate, confirming that disaster has been averted. Provided that there are no unexpected surprises, the report should reduce further the odds of more QE by the Bank of England and could boost the GBP.

9.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring sales of newly-constructed homes, Thurs., May 23, 10:00 am, ET.

Similar to the existing home sales, a small increase is also expected in the U.S. new home sales, with consensus forecasts estimating a reading of 429K in April compared with 417K in March.

10.    EUR- Germany IFO Business Climate Index, a leading indicator of economic conditions measuring the outlook of businesses, Fri., May 24, 4:00 am, ET.

After the shocking drop in the ZEW economic sentiment index, the business outlook in the euro-zone’s largest economy is forecast to be a bit more optimistic with the Ifo index rising to 104.6 in May from 104.4 in April. The EUR could continue to feel the pressure if the index disappoints and paints a dire economic picture, increasing the probability of more easing by the European Central Bank.