Saturday, March 26, 2011

Commentary by Central Bank Policymakers Could Overshadow Data Next Week

The flow of data next week is particularly heavy, as it marks the end
of March and the beginning of April, meaning growth figures will be
released from major economies, as well as labor market data from the
U.S. However, following the European Union Summit, the markets will be
looking towards commentary by central bank policymakers around the
globe to figure out how to wind down stimulus, withdraw liquidity, and
raise rates. U.S. Treasuries saw their yields jump late in the North
American session on Friday following commentary by Federal Reserve
Governor Charles Plosser that he would support action to end the
FOMC's mandate of quantitative easing. With many FOMC policymakers
scheduled to speak next across the globe, markets will be listening
eagerly to try and pinpoint a time if and when the Federal Reserve
will raise rates. Further hawkish commentary will assuredly boost
interest rate expectations, sending the Greenback higher against other
major currencies.

* German Consumer Price Index (YoY) (MAR P): March 29 – --:-- GMT

Inflation is expected to continue its creep higher in Europe, with
Germany's consumer price index expected to have gained by 2.2
percent in March, on a year-over-year basis. Calls by European
Central Bank policymakers remain high; in fact, the OIS shows a
124.2 percent chance of the European Central Bank raising interest
rates by 25-bps at their meeting in a few weeks. Consumer prices
have been accelerating an increasingly accelerating rate since
August, and the year-over-year inflation rate has been positive
every month since November 2009. A reading over 2.0 percent would
mark the second consecutive month in which the index had gained at
such a pace, and another jump in German consumer prices would
likely be the final nail in the coffin for an ECB rate hike with
purchasing power being siphoned from European consumers.

* U.S. Consumer Confidence (MAR): March 29 – 14:00 GMT

Consumer confidence is forecasted to fall back below 70.0, after
holding above said level for only one month. A reading of 65.0
would roughly equate to the reading in January, which was 64.8. The
reading in February was the highest rate in three years. A turn
lower in the housing market will likely be one of the leading
causes of the decline in confidence, as evidenced by a record low
in new housing starts this week. A poor housing market, in
conjunction with rising inflationary pressures, the crisis in the
Middle East and North Africa, and a deteriorating nuclear situation
in Japan area also to have been factors that could have weighed on
confidence. The latter two events could just be a temporary drag on
confidence if the situations are resolved without too much
collateral damage to human life and the environment. A
steeper-than-expected drop will almost definitely weigh down the
U.S. Dollar, as one would expect a deteriorating outlook for the
economy to be followed by less consumption, and depressed growth
figures down the road. Join a DailyFX analyst for live coverage of
event!

* Canada Gross Domestic Product (YoY) (JAN): March 31 – 12:30 GMT

Canadian gross domestic product data surprised the market in the 4Q
of 2010, as exports expanded at their fastest rate since 2004 and
the pace of spending by consumers quickened. However, facing steep
debt issues coming into 2011, as well as a strong Canadian dollar
relative to its U.S. counterpart, figures, though expected to show
continued growth at a 3.1 percent clip, could miss expectations.
Clearly, the Canadian people are not pleased with the direction the
country is moving in, given that the House of Commons voted today
to remove the current conservative government from its position,
with new elections expected to be held in May. Similarly, economic
conditions in the first few months of the new year were likely to
have been significantly worse than they were in the preceding
months, leading one to believe that the GDP figure could be slimmer
than anticipated. However, considering the components of growth are
well-documented before the release of the aggregate number, the
price action sparked onto Loonie-crosses could be limited. Join a
DailyFX analyst for live coverage of event!

* U.S. Change in Non-farm Payrolls (FEB): April 1 – 12:30 GMT

Payroll figures beat forecasts last month, expanding by 192,000
jobs, versus the 190,000 expansion expected. Job growth in December
was particularly weak, but the markets seemed to accept the higher
figure in January as a result of more moderate weather conditions
relative to how they were in December, and an improving overall
economy. True, another round of payrolls at or above expectations
will certainly support Federal Reserve Chairman Ben Bernanke's
postulation that there are "grounds for optimism" about
improvements in the labor market, although it has been projected
that there needs to be at least 125,000 jobs added every month for
the labor market to keep up with population growth. Also featured
on Friday will be the Unemployment Rate, which after falling to its
lowest level since April 2009, is expected to hold at 8.9 percent.
Join a DailyFX analyst for live coverage of event!

* U.S. ISM Manufacturing (MAR): April 1 – 14:00 GMT

The ISM manufacturing gauge has risen every month since July,
reaching its highest level since May 2004 when it reached 61.4 in
February. The index is expected to show continued expansion in the
manufacturing sector, which is indicated by a reading above 50.0. A
weaker Greenback across the major currencies has certainly helped
increase demand for American goods, ultimately boosting exports and
keeping growth running. Another strong number will boost hawkish
rhetoric within the Federal Reserve, as rate hike proponents will
cite the gauge as a reason to withdraw quantitative easing in order
to prevent the economy from overheating. On the contrary, if the
figure slides more than expected, it could lead to a weaker U.S.
Dollar, as adversaries of a rate hike will cite unstable footing
the U.S. economy finds itself on, and another reason to extend
quantitative easing or introduce a whole new round of liquidity
injections.

See the DailyFX Calendar for a full list, timetable, and consensus
forecasts for upcoming economic indicators.

Written by Christopher Vecchio, DailyFX Research

Source: Dailyfx.com

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