1. Reaction to EU Summit: When Will The Sad Truth Dawn
As noted in PRIOR WEEK: 17 REASONS TO FADE THE EU SUMMIT EUPHORIA RALLY, we doubt the huge rally on Friday was justified. See that post for full details.
The short version: we expect the rally will be quickly faded, and used as a chance to re-establish short positions in risk assets.
Keep watch for attempt by German leaders to downplay their so called concessions for the sake of their own voters.
2. US Monthly Jobs Reports & Anticipation
This will assume more importance if the EU stays quiet and/or our anticipated reversal of the Friday rally comes quickly and thus essentially puts the EU summit behind us.
Expectations are low, but likely market reaction to the reports and the ones that feed speculation about them is unclear. While we don’t believe the Fed can do much via new QE, markets may take another sluggish report as a signal that QE 3 is now more likely, in a “bad news is good news” move.
The related ISM reports that precede these reports will be important not only for the hints they yield about the Friday reports but also for whatever update they provide about the state of the thus far sluggish US recovery.
3. Central Bank Rate Statements
The ECB, BoE, and RBA have rate statements due out this week. No changes expected from the RBA, but we’re expecting movement from the ECB and BoE.
The ECB is expected to cut interest rates by 25 bps to a record 0.75%. With German inflation falling and currently at just 1.7%, below the ECB’s 2% target, deflation fears may factor in.
The BoE is also expected to cut this week, but by 50 bps, as the UK is back in recession and the BoE has been sounding dovish and willing to cut rates.
4. Wave of Manufacturing and Services PMI Reports From China, Europe, UK, and US
If the EU remains quiet, these could become market moving, especially if they show similar positive or negative results and are mutually reinforcing. The general consensus is for continued contraction in the major economies.
5. OTHER CALENDAR EVENTS
The only other calendar events in this already packed week that might be market moving are Spanish and French 10 year bond sales on Thursday. A poor showing or spiking yields could go far to reverse Friday’s EU Summit euphoria, if any remains by then.
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