Jun. 2, 2013 (Allthingsforex.com) – Three monetary policy announcements by major central banks and the U.S. Non-Farm Payrolls report will make for an intriguing week ahead as traders watch the next move by European Central Bank and gauge the odds of “tapering” of the Fed’s asset purchases based on the condition of the U.S. labor market.
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. EUR- Euro-zone Manufacturing PMI, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Jun. 3, 4:00 am, ET.
Although the index is expected to bounce a bit higher, the chronic contraction in the euro-zone manufacturing sector is likely to continue for another month. The revised estimate of the Manufacturing Purchasing Managers Index is forecast to show a reading of 47.8 in May, compared with 46.7 in April.
2. USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Mon., Jun. 3, 10:00 am, ET.
Manufacturing slowed down to 50.7 in April and activity could remain subdued with an index reading of 50.5 in May.
3. AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Jun. 4, 12:30 am, ET.
With its largest trading partner slowing, the mining boom peaking and the “two-speed” Australian economy underperforming, the Reserve Bank of Australia could be forced to announce another rate cut following the 25 bps reduction in May. The Aussie dollar has fallen significantly since the last meeting and could stay under the pressure if the central bank lowers the benchmark rate to 2.5% and warns about the negative effects of persistent currency strength.
4. EUR- Euro-zone Services PMI, a leading indicator of economic conditions measuring activity in the services sector, Wed., Jun. 5, 4:00 am, ET.
The final reading is expected to be in line with the preliminary estimate which showed activity in the euro-zone services sector inching higher to 47.5 in May from 47.0 in April. Despite of the anticipated increase, the index will remain below the 50 boom/bust line for yet another month of contraction.
5. EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Jun. 5, 5:00 am, ET.
In the first quarter of the year, the euro-zone economy was unable to return to growth and the revised estimate is forecast to confirm that the economy contracted by 0.2% q/q, prolonging the recession for a third consecutive quarter. With no end to its recessionary period and not much optimism that the economy might be turning a corner in the near future, the EUR could be pushed lower on expectations of additional easing by the European Central Bank.
6. USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Wed., Jun. 5, 8:15 am, ET.
Following the unexpected decline to 119K in April, the U.S. private sector is forecast to pick up the pace of job creation with up to 170K jobs added in May.
7. USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Wed., Jun. 5, 10:00 am, ET.
Reaching its weakest level in nine months with a drop to 53.1 in April, activity in the U.S. services sector could bounce higher with a reading of 53.4 in May.
8. GBP- Bank of England Interest Rate Announcement, Thurs., Jun. 6, 7:00 am, ET.
The hopes that the latest weak retail sales report automatically means more easing by the Bank of England may prove to be misguided, especially if the U.K. manufacturing and services PMI reports throughout the week signal that activity is picking up. Granted, the drop in consumer spending is not to be taken lightly, but it will take more bad data before the Monetary Policy Committee decides to increase the size of the Asset Purchase Program. For the time being, the U.K. economy has comfortably managed to avoid an unprecedented triple dip recession in Q1, the new Governor Mark Carney is to take his seat on July 1, and there is simply no urgency for the Bank of England policy makers to do anything in June, except to maintain the status quo. It will then be up to Mr. Carney to steer monetary policy depending on the state of the U.K. economy. Until the Bank of England rejoins the QE party, the pound should remain as a viable alternative to currencies whose central banks are committed to aggressive monetary policy easing.
9. EUR- European Central Bank Interest Rate Announcement, Thurs., Jun. 6, 7:45 am, ET.
Despite of some recent signs that conditions in Germany may be improving, the 17-nation euro-zone is struggling with record high unemployment and economic growth is still nowhere to be seen. This is why it would not be a surprise to see the European Central Bank resorting to additional unconventional monetary policy easing measures that could be announced as early as the June meeting. Expectations that the ECB will continue to look for ways to spur economic growth with further easing could serve as a catalyst to push the euro further into the $1.20′s.
10. USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Jun. 7, 8:30 am, ET.
Job creation in the U.S. could keep the momentum going with the economy adding up to 180K jobs in May compared with 165K in April, while the unemployment rate stays unchanged at 7.5%. A strong NFP report could boost the USD on expectations that the Fed might be one step closer to reducing the size of its monthly asset purchases.