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German Zew and IFO Could Reflect Damage of Debt Crisis Overshadowing Infaltion Reports

German Zew and IFO Could Reflect Damage of Debt Crisis Overshadowing Infaltion Reports

2010-05-17 11:48:00
John Rivera, Currency Analyst
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•    German Zew (MAY)   – May 18 - 13:00 GMT
The German Zew reading will give us the first clue to how the European debt crisis is impacting sentiment in the region. The outlook from investors is expected to have dimmed to 47 from 53 the month prior, when an improving labor picture for Europe’s largest economy led to a surge in optimism. Increasing pessimism in the region could derail its recovery adding additional pressure on the slumping Euro. Euro-zone inflation data will cross the wires simultaneously and could present additional event risk. Forecasts are for consumer prices to remain at 1.5% which would support the ECB claims that risk remain balanced, making it a non-event.

•    U.S. Consumer Price Index (APR)  – May 19 – 08:30 GMT
Inflation in the U.S. is expected to have accelerated slightly to 2.4% in April from 2.3% the month prior as rising energy costs and improving demand put upward pressure on prices. However, forecasts are for consumer prices stripped of energy to have slowed to 1.0% from 1.1% which will allow the FOMC to remain on hold. The lack of broader price growth removes the urgency for raising rates for the central bank which has pledge to maintain its current accommodative policy for an extended period. The release deserves attention as an upside surprise in price growth would raise yield expectations and could generate dollar support.

•    U.K. Retail Sales (APR) – May 20–09:00 GMT
Considering the concerns over the potential for the debt crisis reaching Great Britain’s doorstep and the recent weakness in exports, any signs that domestic growth is declining could sink the pound further. Economists are forecasting a 0.2% improvement in retail sales in April as an improving labor picture provides the back drop for stronger consumption. However, demand ex-fuel is predicted to have fallen by 0.1%, indicating that the headline number could be inflated by higher energy costs, masking broader weaker demand. A disappointing print could spell disaster for the reeling Pound as government spending is expected to be reduced dramatically by the new government leaving the burden of consumption to consumers. Conversely, a surge in consumer spending may ease concerns and set the stage for a sterling retracement.

•    German IFO (MAY) – May 21- 01:30 GMT
Sentiment readings deserve extra focus on the heels of the debt crisis which increases the event risk for the German business sentiment survey. The early forecasts are calling for an improvement to 101.9 from 101.6 as strong demand from abroad continues to fuel activity. However, the expectation component of the survey is expected to decline to 103.5 from 104.0. We could see a more precipitous drop if the outlook for Euro-area driven demand is expected to fall with governments slashing spending. This would feed into prevailing concerns that the region’s growth could stagnate adding weight to the falling euro.

•    Canadian Consumer Price Index (APR) May 21 – 15:00 GMT
The Bank of Canada is expected to raise rates at their June meeting as the country continues to experience growth on the back of demand from emerging markets. A strong labor markets has begun to fuel domestic spending which is putting upward pressure on prices. Inflation in the country is forecasted to have accelerated at a pace of 1.7% from 1.4% the month prior. Meanwhile, core consumer prices are expected to have increased to 1.8% near the central banks’ 2.0% target level. Faster than expected price growth would be further confirmation that a rate hike is imminent and could generate Canadian dollar support.
 

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