Trading Week Outlook: February 21 - 25, 2011

The main measure of U.S. economic activity and growth, coupled with consumer and housing market reports from the world’s largest economy, will take the center stage in the busy week ahead.

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- Germany IFO Institute Business Climate and Expectations Index, a leading indicator of economic conditions and business expectations in the Euro-zone’s largest economy, and Euro-zone Composite Manufacturing and Services PMI- Purchasing Managers Indexes, two leading indicators of economic conditions measuring the activity of purchasing managers in the manufacturing and services sectors, Mon., Feb. 21, 4:00 am, ET.

Following a positive ZEW sentiment survey, the German IFO index is expected to maintain the optimistic outlook with a reading of 110.2 in February, compared with 110.3 in the previous month. The preliminary flash estimate of the Euro-zone Composite PMI could demonstrate strength in the Euro-zone economy with the index rising to 56.9 in February from 56.3 in January.

2. USD- U.S. Consumer Confidence Index of consumers’ outlook on present and future economic conditions, Tues., Feb. 22, 10:00 am, ET.

The trend of improvement in the confidence of U.S. consumers could continue with the index forecast to register a reading of 61.5, compared with 60.6 in the previous month.

3. GBP- Bank of England Monetary Policy Committee Meeting Minutes, a comprehensive report of the central bank’s meeting that could provide an outlook on the economy, interest rates and future monetary policy, Wed., Feb. 23, 4:30 am, ET.

Stubbornly high inflation and the threat of economic slowdown as a result of the U.K. government’s massive spending cuts create a difficult situation for the Bank of England policy makers. The minutes are expected to confirm that, despite of the rising inflationary pressures, the Monetary Policy Committee was not in any hurry to hike interest rates. However, if more policy makers have joined the camp of the two “rate hawks” Andrew Sentance and Martin Weale, the market could continue to price expectations for an interest rate increase in the near future.

4. USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Wed., Feb. 23, 10:00 am, ET.

After a better-than-expected housing starts report, the sales of existing homes could also inch higher to 5.3 M in January from 5.28 M in December.

5. USD- U.S. Durable Goods Orders, a leading indicator of economic activity measuring durable goods orders placed with domestic manufacturers, and U.S. Jobless Claims, an important gauge of employment trends and labor market conditions, Thurs., Feb. 24, 8:30 am, ET.

Despite of the significant 2.3% m/m drop in December, the U.S. orders for durable goods are expected to rebound with an increase of 2.4% m/m in January. First-time applications for unemployment benefits are forecast to reach 405K, slightly lower that the reading of 410K in the previous week. To indicate a significant decline in unemployment, economists estimate that jobless applications would need to fall to 375K or below.

6. USD- U.S. New Home Sales, an important gauge of housing market conditions measuring the number of newly constructed homes with a committed sale during the previous month, Thurs., Feb. 24, 10:00 am, ET.

The U.S. new home sales could register a small increase by up to 330K in January from 329K in December. However, considering the bad winter weather conditions in a number of U.S. states, the potential for weaker-than-expected new and existing home sales should not be excluded.

7. JPY- Japan CPI- Consumer Price Index, the main measure of inflation preferred by the Bank of Japan, Thurs., Feb. 24, 6:30 pm, ET.

Although deflation could persist with the inflation gauge expected to stay below 0% for another month, the Japanese economy could see inflationary pressures rising a bit as the CPI registers a smaller 0.3% y/y decline in January from -0.4% y/y in December.

8. GBP- U.K. GDP- Gross Domestic Product, the main measure of economic activity and growth, Fri., Feb. 25, 4:30 am, ET.

The revised estimate of the U.K. Q4 GDP should confirm that the U.K. economy contracted by 0.5% q/q in the fourth quarter compared with the 0.8% q/q expansion in Q3 2010.

9. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Fri., Feb. 25, 8:30 am, ET.

This main spotlight economic event of the week will bring the second estimate of the U.S. Q4 GDP which is forecast to revise the U.S. economic growth higher by 3.3% in the fourth quarter of 2010, up from the preliminary estimate of 3.2% and faster than the 2.5% growth in the third quarter.

10. USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Feb. 25, 9:55 am, ET.

Consumers in the U.S. are expected to remain optimistic with a revised consumer sentiment index reading of 75.4 in February, up from the previous 75.1 estimate.