Trading Week Outlook: Oct. 24 - Oct. 28

The week ahead will bring a sequence of monetary policy announcements by three central banks and a long slate of important economic reports from the world’s largest economy, but once again the EU Summit will steal the show as traders ponder if the EU leaders will be capable of solving the debt crisis or if they will continue to postpone the “day of reckoning”.

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.    NZD- New Zealand CPI- Consumer Price Index, the main measure of inflation preferred by the Reserve Bank of New Zealand, Mon., Oct. 24, 5:45 pm, ET.

Two days ahead of the Reserve Bank of New Zealand’s monetary policy meeting, the quarterly CPI report could add to the reduced odds of a rate hike in the near term, with inflationary pressures forecast to subside to 0.8% q/q in Q3 from 1.0% q/q in Q2 2011.

2.    CAD- Bank of Canada Interest Rate Announcement, Tues., Oct. 25, 9:00 am, ET.

Despite of the rise in the Canadian CPI to 3.2% y/y, the index is still below the March peak at 3.7% y/y and since growth is the main agenda of the Bank of Canada, at this point the bank would be likely to refrain from tightening, keeping rates at the current 1.0% level. 

3.    USD- U.S. Consumer Confidence Index of consumers’ outlook on present and future economic conditions, Tues., Oct. 25, 10:00 am, ET.

The consumer sentiment data could start the week’s list of what is expected to be more optimistic U.S. economic reports with the index forecast to increase to 46.0 in October from 45.4 in September.

4.    AUD- Australia CPI- Consumer Price Index, the main measure of inflation preferred by the Reserve Bank of Australia, Tues., Oct. 25, 8:30 pm, ET.

In its latest meeting minutes, the Reserve Bank of Australia stated that the “inflation outlook appeared less concerning” and if the CPI report confirms these expectations, the market could begin to push further expectations of a RBA rate hike. The Australian inflation gauge is forecast to pull back to 0.7% q/q in Q3 2011 from 0.9% q/q in the second quarter.

5.    EUR- EU Summit of leaders of the 27 countries in the European Union, Wed., Oct. 26, tentative, all day event.

All eyes will be centered on the EU Summit when the markets around the world expect to see the promised “comprehensive strategy on the euro-area sovereign debt crisis”. This additional summit, which follows the one from October 23, is scheduled to take place by October 26 because EU leaders needed more time to finalize their new plans on how to prevent further contagion, recapitalize banks, expand EFSF, and conclude discussions on the next bailout installment for Greece. “Better late than never” optimism that EU leaders have finally realized the seriousness of the situation after about 2 years since the beginning of the crisis, has helped investor sentiment and risk appetite, with the euro registering its biggest rally since March, 2009. A lot is riding on this summit and if the EU leaders deliver anything short of spectacular, disappointment and risk aversion could quickly set back in, renewing the pressure on the single currency.

6.    USD- U.S. New Home Sales, an important gauge of housing market conditions measuring the number of newly constructed homes with a committed sale during the previous month, Wed., Oct. 26, 10:00 am, ET.

Although not at all impressive, in the “new normal” market environment even a rise of 5,000 might be considered as a positive sign, as the new home sales are expected to register a small increase to 300K in September from 295K in August.

7.    NZD- Reserve Bank of New Zealand Interest Rate Announcement, Wed., Oct. 26, 4:00 pm, ET.

The Reserve Bank of New Zealand would probably steer further away from monetary policy tightening, following the direction set by all other major central banks as they all recently refocused on helping economic growth. The benchmark rate is expected to be left unchanged at 2.50%. 

8.    JPY- Bank of Japan Interest Rate Announcement, Thur., Oct. 27, around 12:00 am, ET.

With the yen registering new record highs against the U.S. dollar, it would be interesting to see what the Bank of Japan has to say and do about the persistent strength of their currency. This is provided that they haven’t intervened by the time the meeting takes place, as intervention is becoming a likely event, especially if the dollar breaks even lower.

9.     USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Thurs., Oct. 27, 8:30 am, ET.  

The preliminary estimate of the U.S. Q3 GDP could instill some optimism with the U.S. economy forecast to regain momentum and grow by 2.0% q/a in the third quarter, compared with 1.3% q/a in Q2 2011.

10.    USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Federal Reserve, Fri., Oct. 28, 8:30 am, ET.  

Expected to be another potentially positive U.S. economic report, the consumer spending is forecast to register an increase by 0.6% m/m in September from 0.2% m/m in August and personal income to rise by 0.4% m/m from -0.1% m/m in the previous month, while the Fed’s preferred inflation gauge, the core PCE Index, is expected to show inflationary pressures remaining flat at 0.1% m/m in September, same as the 0.1% m/m reading in August.