The Week Ahead: Oct. 21-27, 2012

Spain holds regional elections, which could pave the way for an aid request in early November

Elections in Galicia and in the Basque country are seen as a referendum on Prime Minister Mariano Rajoy’s leadership. It’s widely believed Rajoy has postponed request aid from the ESM until these elections are over. However, as we’ve said before, since Spanish debt yields are currently manageable and programs are already underway for a bank recapitalization, our view is a bailout seems largely unnecessary at the moment.

September Mexican retail sales

Australian leading indicators index

US Presidential debate

The third and final US presidential debate focuses on foreign policy.

Eurozone consumer confidence

Confidence and other sentiment-based readings are backward-looking and presage little about the future direction of the economy or markets.

August Canadian retail sales

French business confidence

Richmond Fed September manufacturing index

Regional business and manufacturing surveys are often driven by short-term conditions in local industries rather than national (or global) trends. So these are worth watching, but with many grains of salt.

Australian Q3 CPI

German, French, EMU October flash PMI

Flash PMI results are preliminary, based on a limited set of data and subject to future revision. September’s report showed continued weakness in manufacturing and service, but some regions have shown surprising resilience while others have weakened. We expect that trend, on balance, to continue.

October German Ifo survey

This business sentiment index is closely watched as an appraisal of the current business expectations. However, as with consumer confidence and other such readings, they should be regarded with some cynicism.

US October flash PMI manufacturing index

September US new home sales and weekly mortgage bankers association purchase applications

On balance, housing data have shown considerable strength recently and new home sales have shown moderate improvements the last few months. However, it’s important to remember the economy has come this far without a robust housing recovery. From here, even minor housing improvements would be a nice tailwind—but not absolutely necessary. Another fact worth considering: Purchase application data only cover one week and can be volatile.

US FOMC announcement

Following the Fed’s announcement last month of QE3, continuing “Operation Twist” and maintaining an overwhelmingly accommodative policy stance for an extended period of time, we expect little new news from this month’s two-day meeting.

August Italian retail sales

Q3 UK and South Korean GDP

September US durable goods orders

US weekly jobless claims

Chicago Fed national activity index

The National Activity Index is unique in that it is one of the few regional Fed indexes that covers the entire country’s economy. However, it’s a composite of 85 other economic indicators released earlier in the month (many of which are backward-looking), so it likely presages little outside of what markets already know.

US pending home sales

Kansas City Fed manufacturing index

See Richmond Fed manufacturing index above (10/23).

Japanese CPI

US Q3 GDP

The advance release of Q3 GDP is subject to significant revision—often months and years after it is first released. That said, US GDP, while not gangbusters recently, continues to be driven by a still-strong private sector. Government spending, however, has detracted from headline growth in six of the last nine quarters. But shrinking government spending isn’t necessarily a long-term negative—it allows room for the private sector to allocate capital more efficiently.

US consumer sentiment

Early voting for the US presidential election begins in Florida, Maryland and the District of Columbia