IIn the Euro area, the markets’ focus will be on the ECOFIN meeting and possible developments on the debt crisis front. In terms of data, the ZEW index is expected to be steady at 7.6 in May. European inflation should confirmed at 2.8% yoy in April, while the underlying dynamic should rise to 1.6% yoy from 1.3% yoy..…
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The debt crisis and the prospect of further fiscal tightening in almost every Euro area country might further dent household sentiment, which we expect to fall further to -12.4 in May from -11.6 before.
The coming week is packed with data and events in the United States. The first manufacturing surveys for May should confirm expansion at a more subdued pace than in the first quarter. Industrial production should be up in April, despite the closure of Japanese car factories in the USA. The residential real estate sector data for April is expected to show no improvement in sales and new starts. The minutes of the FOMC meeting will add little of note to Bernanke’s press conference.
Monday 16 May
The Eurogroup meeting will discuss the aid programme for Portugal in light of the outcome of the IMF and EU Commission mission, and it might consider extending the aid to Greece, although the final decision will only be taken at the European Council meeting in June with the results of the IMF reviews.
European inflation should be confirmed at 2.8% yoy in April, in line with the advance estimates. Prices should be up 1.4% mom on the back of the surge in commodity prices. Ex energy, food and tobacco, consumer prices are expected to be up 0.4% mom on residual pressures in apparel and hotels and restaurants. Core inflation would rise to 1.6% yoy from 1.3% yoy. In the coming months, Euro area inflation will stick at the present levels and could even rise to 3% yoy, although this would likely be short-lived and due to commodity price volatility.
The NY Fed Empire survey should show a correction in May, to an estimated 19 from 21.7 in April, the first dip after five straight gains. The other manufacturing indices fell in April. The Empire had shown a more gradual positive trend in the first part of 2011 than the other surveys and the expected correction should be more limited. May should show the effects of the car factory closures and the shortage of parts imported from Japan in various sectors. The price component should correct slightly from the April high of 57.69.
Tuesday 17 May
Germany. The ZEW index is expected to be steady at 7.6 in May; in past months sentiment among analysts dipped (-8.1) on the negative debt crisis news flow. The expectations index is below the long-term mean (22.6). The view of the present situation might, on the other hand, improve to 88.2, in line with the outstanding indications on the economic cycle.
Housing starts should rise to 575k in April from 549k in March, recouping some of February’s steep fall, aided by normalising weather conditions. The stagnation of new home sales and homebuilder confidence suggests construction activity will remain within the range seen in the last 18 months, with starts between 510k and 600k. Permits should fall from 585k in March to 575k.
Industrial production is expected to be up 0.5% mom in April. The manufacturing sector should record robust growth, ex auto, based on the hours worked indications in the employment report. The closure of Japanese auto factories in the USA will check sector output. Utilities and mining should show large gains. Capacity utilisation should continue its uptrend, rising to 77.6% from 77.4% in March, now well above the average for the last ten years (76.7%) and just 2pp shy of the last 20-year average (79.5%). Capacity utilisation in manufacturing should rise to 76%, above the 10-year mean (74.3%) and 1.7pp short of the 20-year average (77.7%).
Wednesday 18 May
The Fed publishes the minutes of the FOMC meeting held 26-27 April. The minutes will contain little new information to Bernanke’s press conference. The document should again show a broad divergence of views on the exit strategy, in terms both of timing and sequencing. However, the minutes should confirm what was announced post-meeting: monetary policy remains appropriate and the reversal is not imminent. The minutes should also indicate that the Fed will make every effort to pre-announce the reversal in monetary policy.
Thursday 19 May
Sales of existing homes are expected to rise to 5.25M units ann. in April from 5.1M in March. Pending home sales rose in both February and March, giving positive indications for existing home sales. Property sales are still however without a clear uptrend. The data should again show a large percentage of sales of repossessed homes.
The Philadelphia Fed index should rise to 24 in May, making up only some of April’s steep fall (to 18.5 from 43.4 in March). As with the other surveys, in May the prices paid component should soften from the April highs. New orders should rise from 18.8 in April, though without revisiting the March levels (40.3).
Friday 20 May
The index of household confidence might slip further in May, falling to -12 from -11.6 before. Specifically, we expect the view of the general economic situation to deteriorate in the wake of the ongoing flow of bad news on the debt crisis.
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