Your Weekly Economic Cheat Sheet

Last Week

The calendar was busy, but the only numbers of any real importance last week were the flash global manufacturing PMIs. There were gives and takes, as always, but the bottom line was that they met current market expectations (and as such aren’t rocking the global macro boat).

Growth remained strong in the U.S. While it was a “technical miss” vs. expectations (57.9 vs. (E) 58.1), the September flash PMI was the second-highest ever. So on an absolute basis, it’s still strong.

In Europe, official EMU PMI stayed above 50 (so technically in expansion territory). But, the German number was a big miss (50.3 vs. (E) 51.2), and that number was definitely the biggest disappointment last week.

But, if Germany was the disappointment, then China was the positive surprise. Despite loud “whispers” that PMI would drop below 50, it actually rose slightly. It confirmed what we know about China: Growth isn’t particularly strong, but it’s not about to implode either.

The takeaway from last week was: The U.S. is still strong, China is “OK” and Europe remains in the economic ICU.

This Week

It’s a busy week of data with a large number of reports. While we get insight into virtually every corner of the domestic and global economy this week, the most important numbers to watch will be from Europe.

In order of importance: EMU flash HICP (their CPI) (Tuesday), U.S. jobs report (Friday), ECB decision and press conference (Thursday), global official PMIs (Tuesday night/Wednesday morning), global composite PMIs (Thursday night/Friday morning).

The EMU HICP is the most important number of the week because it’ll offer us the latest insight into whether we are seeing a continued slight moderation of deflation fears in the EU.  Because a “triple-dip” recession in the EU remains the #1 global macro risk to watch, it’s obvious why this inflation reading is so important.

The jobs report here in the U.S. is always important, although honestly it’s not quite as monumental as it has been in the past. Unless it’s another “dud” like August, or a very hot number (say north of 300K) it’s not going to shift expectations for the Fed.  But, it will be important to see a bounce-back and a revision higher to August’s disappointing 142K.  Also keep in mind it’s “jobs week,” so we get ADP Wednesday and claims Thursday.

The ECB meeting Wednesday won’t bring any new policies or interest rate cuts, but the market will be looking for more reassurance from Draghi & Co. about both their willingness to do QE if needed (and it almost certainly will be), and their reaction to the soft TLTRO demand. (If he can make a credible case why he thinks the December offering will be good, that will help market sentiment and be EU-stock-positive, bond-negative.)

The official PMIs are released Tuesday night/Wednesday night, and China’s official government manufacturing PMI will be the most important number to watch. It’s holding on above 50 and if it can confirm the surprise uptick we saw in the Markit flash PMI last week, it’ll help alleviate some nerves about the pace of China’s economic growth. The European and U.S. numbers will obviously be closely watched, but they shouldn’t differ too far from the “flash” readings we got last week. (If there’s a surprise negative revision to the European data, it may weigh on markets a bit, but there are too many other catalysts this week for it to do any major damage.)

Finally, we get the composite global PMIs (so, manufacturing and service sector) Thursday and Friday, and again the market will be looking for confirmation of current expectations:  Chinese economy losing some momentum but still seeing incremental growth, Europe “hanging on,” and the U.S. recovery progressing.  As long as the numbers generally confirm those expectations, don’t expect too much of a market reaction.

But, proving my point it’s a busy week, we also get several other numbers: Personal Income and Outlays will be watched this morning to see if there is a drop in the “core PCE price index” (the Fed’s preferred inflation gauge). Remember, CPI two weeks ago surprisingly dropped. If core PCE confirms this, it may give the Fed some room to stay “dovish” a bit longer than the market may expect. So, there is risk from a Fed expectation standpoint into the number.  We also get more housing data, via Pending Home Sales Tuesday, auto sales Wednesday, and non-manufacturing PMIs Friday.

Japan also has a slew of data out overnight tonight, but the biggest number this week will be the Tankan survey, released tomorrow night.  Worries about a slowing Japanese economy and eventual incremental stimulus have pushed the yen to multi-year lows and the DXJ to near-all-time highs. So, the data need to confirm that we are indeed seeing a slowdown; otherwise we could see a violent (albeit temporary) snapback move in both the yen and DXJ.

Bottom line is this week is busy, but really the key is Europe.  If investors can come away from this week more confident about Europe and the ECB, it’ll become a welcomed tailwind on risk assets (and likely a headwind on Treasuries).