World Week Ahead: Eurozone, U.S. Recovering; Eyes on China

The good news for the global economy is that the eurozone's economic troubles appear to be bottoming out. This week's data flow, including purchasing managers indexes, should emphasize that modestly improving picture. In the knowledge that fresh monetary stimulus is coming from the European Central Bank and that demand is recovering in the U.S., investors can perhaps feel a little more at ease about the drag on the global economy coming from the wider cross-Atlantic economic regions.

Not so China, however. Disappointing manufacturing PMIs over the weekend have underscored the damage being done by a protracted slowdown there, feeding into a deteriorating outlook that led the People's Bank of China to unexpectedly cut rates on Saturday. Fresh PMI manufacturing and services data coming out on the Chinese private sector could further sully the outlook for growth in the world's second-largest economy, which broad implications for everyone else.

Here's what you need to watch in the world economy this week:

MONDAY

INDIA: 12 a.m. EST. (10:30 a.m., New Delhi). February manufacturing PMI. [In January, index was 52.9.]

With the government forecasting a strong pickup in growth for 2015, there's an ingrained expectation that numbers such as this one will continue to improve. India is generally seen positively by investors right now, with inflation coming down, its central bank easing policy, and the positive buzz generated by Prime Minister Narendra Modi's pro-business agenda. But there's a concern that Mr. Modi is dragging his feet on serious structural reforms. Without them, indicators such as this one might not see the lift-off that's needed to offset the sharp retracement of more recent years.

TURKEY: 3 a.m. EST. (10 a.m., Ankara). February manufacturing PMI. [Previous, Jan: 49.8.]

Turkey is something of an antithesis to the optimism over India. There, concerns about the power-centralizing tendencies of President Recep Tayyip Erdogan have made investors wary of investing and helped to slow this once-booming economy.

EUROZONE: 3 a.m. -4 a.m. EST. (9 a.m-10 a.m, Brussels) February manufacturing PMIs

There are nascent signs that the eurozone is recovering, albeit slowly (and without the participation of the region's second-biggest economy, France). These data could help to confirm that, based on the relatively positive readout that the mid-February "flash" PMIs delivered.

U.K.: 4:30 a.m. EST. (9:30 a.m, London) Chartered Institute of Purchasing & Supply February manufacturing PMI. [In January, index was 53.]

Is the U.K. still outpacing the eurozone?

EUROZONE: 5 a.m. (11 a.m. EST, Brussels) February flash estimate euro area inflation. [Expected -0.4% vs. -0.6% in January; core CPI expected +0.6%, unchanged from January.]

Has the disinflationary cycle led by lower energy prices and weak continental demand reached its nadir? That's the hope for policymakers, who are eyeing a modest recovery in the eurozone's economic situation as a counterpoint to the deflation risk that led the European Central Bank to launch an unprecedented quantitative easing program. Now that QE is underway, however, don't expect it to stop until there is clear sign that inflation is back in positive territory and headed closer to the ECB's 2% target.

EUROZONE: 5 a.m. EST. (11 a.m., Brussels) January unemployment. [Jobless rate expected 11.3% vs. 11.4% in December.]

The good news is that the eurozone's unemployment rate appears to be falling. If forecasts are correct it will come in at three quarters of a percentage point below the 12% level at which it peaked last year. The bad news is that is still ridiculously high for the monetary union as a whole and disturbingly even higher for crisis countries such as Spain and Greece. Another concern is that the gains are being led by already-strong economies such as Germany, with only limited advances in those hardest hit places where social unrest continues to percolate.

U.S.: 8:30 a.m. EST. January personal income & outlays. [Personal income +0.4% on-month vs. +0.3% in December; personal spending -0.1% on-month vs. -0.3% in December.]

Incomes appear to be rising -- what with a 0.5% on-month jump in wages recorded in the January employment report -- but consumption is slumping a bit. Meanwhile, the personal consumption expenditures (PCE) price index -- an indicator closely followed by the Federal Reserve, can probably expect to have shown another sharp decline from +0.7% annual gain it showed in December due to the impact of lower gasoline and other fuel prices.

U.S.: 10 a.m. EST. Institute for Supply Management February manufacturing report on business. [PMI expected 53 vs. 53.5 in January.]

Not quite the same gangbusters growth seen a few months back for this indicator, but not enough of a slowdown to suggest the U.S. recovery is in jeopardy. It will also be important to examine the ISM price index, which is currently very weak on account of lower energy prices, and the employment index, which has been showing solid expansion in keeping with other labor market indicators.

AUSTRALIA: 10:30 p.m. EST. (2:30 p.m, Sydney) Reserve Bank of Australia March monetary policy decision.

Last month, the RBA surprised many global investors by cutting its cash rate by a quarter point to 2.25%, a move that helped stir debate over whether the world's central banks were entering into a currency war. And with the economy deteriorating, there's a good chance it may make another cut.

TUESDAY

TAIWAN: 3 a.m. (4 p.m., Taipei) January export orders. [Previously, exports were up +4.5% on-year in December.]

Taiwan's blockbuster export growth from a few months ago has eased as the semiconductor cycle associated with new smartphone releases such as the iPhone 6 has eased.

EUROZONE: 5 a.m. EST. (11 a.m, Brussels). January producer price index. [Expected PPI -0.7% on-month vs. -1% in December; expected -3.0% on-year, vs.-2.7% in January.]

The only consolation in the forecast data for this report is that the idea that producer inflation eased on a monthly basis in January. But it's still negative, and worse, the annual numbers are expected to show a whopping 3% fall. Clearly, the wholesale sector is bearing the brunt of falling oil prices, but the broader effect of depleted pricing power could yet have a wider and more pernicious effect on the broader economy if consumer prices more dramatically absorb this producer price deflation.

CANADA: 8:30 a.m. EST. Fourth quarter GDP. [Expected +2.1% annualized vs. +2.8% in 3Q.]

How big of a hit has the collapse in oil prices imposed on the increasingly commodity-dependent Canadian economy and how much is this offset by an improvement in exports to the economically improving U.S.?

U.S.: 4 p.m. EST. February domestic auto industry sales. [Expected 16.7 million units, annualized, vs. 16.66 million in January.]

If there's one sector of the U.S. economy that's showing no signs of moderating last year's improved growth rate, it's the gangbusters U.S. auto industry. Sales incentives and financing deals help.

AUSTRALIA: 7:30 p.m. (11:30 a.m. Sydney, Wednesday). Fourth-quarter GDP. [Previous quarter showed +0.3% on-quarter, +2.7% on-year.]

The last time Australia saw a recession was 1990 and that time, then-Treasurer Paul Keating famously described it as "the recession Australia has to have" as he launched a sweeping overhaul of the economy that many have since credited for providing the foundation for the country's spectacular growth since then. Now, with Australian politics in disarray and the economy slowing on the back of a slump in commodity prices and a deceleration in Chinese demand for its exports, some are wondering whether the country needs to go throw another recession to spur more focused reforms. The fourth quarter data won't show such a turnabout but it could highlight the extent to which the economy's dependence on mining is creating problems for it.

U.S.: 8:15 p.m. EST. Federal Reserve Chairwoman Janet Yellen speaks at Citizens Budget Commission's Annual Awards Dinner.

Ms. Yellen is probably happy with the somewhat ambiguous response to her testimony last week -- was it hawkish or dovish? So long as investors aren't worried about the Fed rushing to hike rates, the uncertainty she sowed over the timing of that policy shift gives the central bank valuable flexibility. So don't expect her to drift far from that balanced message here, as much as the market would love to get more clarity.

CHINA: 8:45 p.m. (9:45 a.m. Beijing, Wednesday). Markit-HSBC February services PMI. [January PMI 51.8.]

January's index reading marked a five-month low and helped build a picture of a deeper Chinese slowdown. With the latest manufacturing data stabilizing but showing no sign of a solid expansion, any further disappointments in this non-manufacturing indicator will only exacerbate such concerns.

WEDNESDAY

INDIA: 12 a.m. (10:30 a.m.) Markit's February services PMI. [In January PMI was 52.4.]

Although the government is forecasting solid overall growth for 2015, there are some concerns that India's all-important outsourcing industry is in trouble. New automated technologies are making redundant that service, which India's low-wage techies have provided to Western companies. Will this indicator, which is heavily influenced by the outsourcing sector, reflect this?

EUROZONE: 3:15 a.m. -4 a.m. EST. (9 a.m-10 a.m, Brussels) February services PMIs

As with the manufacturing PMIs, the services surveys are showing a welcome return to expansion in the eurozone, even in the laggard that is France.

U.K.: 4:30 a.m. (9:30 a.m, London) Markit February services PMI. [In January, index was 57.2.]

Did January's impressive expansion in Britain's important services sector continue?

EUROZONE: 5 a.m. (11 a.m, Brussels). January retail sales. [Expected +0.1% on-month vs. +0.3% in December.]

For all the signs of recovery in various sectors of the eurozone economy, it's not as if consumers are on a binge. A lack of credit is one reason for that, which is also one of the reasons for the European Central Bank's aggressive new monetary stimulus program.

POLAND: Time N/A. National Bank of Poland interest rate decision

Poland has so far resisted the region-wide drive to cut rates in response to the ECB's big-time monetary easing, but with consumer prices declining as they are elsewhere in the world it is under pressure to take action. The central bank may follow the lead of others in the region and cut rates.

BRAZIL: 8 a.m. EST. (10 a.m, Sao Paulo). Markit's February services PMI. [In January, index was 48.4.]

Brazil continues to struggle. Numbers like those appearing in this indicator raise the continued risk of recession.

U.S.: 8:15 a.m. EST. Automatic Data Processing Inc.'s February National Employment Report. [Private Payrolls forecast +218,000 vs. +213,000 in January.]

After the blockbuster January payrolls report from the government, investors will be looking for all the clues they can get ahead of Friday's repeat of that number to determine whether the trend is continuing. The labor market's development will be critical for determining the timing of Fed rate hikes. The ADP report offers one such hint.

U.S.: 9 a.m. EST. Federal Reserve Bank of Chicago President Charles Evans speech at Lake Forest-Lake Bluff Rotary Club Economic Breakfast.

Evans is well and truly on the doves' side of the Federal Open Market Committee and he has been outspoken in calling for patience in the Fed's approach to rate hikes. He'll probably retain the position, but if he were to sound more open to an increase this year it would be an important measure that the consensus is shifting.

CANADA: Bank of Canada interest rate announcement.

Last months' quarter-point cut in the BOC's overnight rate to 0.75% was a big surprise. And given that it took four-and-a-half years for the BOC to make any change in that rate, it's probably unlikely to follow up that change with another once close on its heels. But it's clear that a drop in oil prices has hurt the oil sector gravely, which had become an increasingly important component of the Canadian economy. Offsetting that in the BOC's mind will probably be the fact that the Canadian dollar has fallen significantly and that demand in the U.S. for Canadian exports should be growing.

U.S.: 10 a.m. EST. Institute for Supply Management February non-manufacturing report on business. [Expected PMI 56.1 vs. 56.7.]

Although economists see this indicator easing from the January readout, the forecast number would still reflect a solid expansionary state in the U.S. services sector, which accounts for more than two-thirds of GDP.

U.S.: 2 p.m. EST. Federal Reserve Board Beige Book

As the U.S. recovery continues, it's becoming clear that some regions of the country are doing better than others, especially those where a housing rebound is in full swing. The Beige Book report is not only a way to gauge the overall outlook but to pick up on these nuances region to region and so determine what the driving factors are behind the broader rebound.

BRAZIL: 4 p.m. EST (6 p.m, Sao Paulo). Banco Central do Brasil monetary policy decision.

No one envies the position that the Brazilian central bank is in. The Brazilian economy is teetering on a return to the recession it saw last year, and yet inflation remains well above the central bank's target -- all amid the presence of a 12.25% figure for the central bank's target Selic rate. That's one of the highest rates in the world and real constraint on the kind of credit growth needed to spur growth. Yet it may just have to increase it again.

U.S.: Time N/A. Federal Reserve Bank of Kansas City President Esther George speech at Central Exchange event.

The hawkish Ms. George can be reliably expected to take the position of those seeking a rate hike sooner rather than later. She isn't a voting member of the FOMC this year.

THURSDAY

GERMANY: 2 a.m. EST. (8 a.m, Berlin) January manufacturing orders. [Expected -1.0% on-month vs. +4.2% in December.]

Economist sees a fairly big pullback in this important leading indicator for German industry, but given that last month's gain was enormous it would not be something to suggest that Germany's nascent recovery is faltering.

U.K.: 7 a.m. EST. (12 a.m, London) Bank of England interest rate decision.

While no change in policy can be expected, one question will be to determine whether the Monetary Policy Committee's two previously hawkish dissenters, Martin Weale and Ian McCafferty, who recently rejoined their seven more dovish colleagues to vote for inaction, are happy with that shift. One would think that as the BOE starts moving closer to a rate hike, this pair's return to dissent would be an early indicator.

EUROZONE: 7:45 a.m. EST. (1:45 p.m, Nicosia). European Central Bank monetary policy decision, out of Cyprus.

Not much is possible in the way of substantive new announcements on the big quantitative easing program announced in January, but ECB President Mario Draghi should offer more details on how that bond-buying program will be implemented. Additionally, he will be asked about whether the ECB intends to accept Greek government bonds as collateral for its bank lending program and therefore address the fate of emergency lending for the Greek banking system.

U.S.: 8:30 a.m. EST.

The expectation is that last week's trend-breaking jump higher in the claims number was an anomaly and that the prevailing tight conditions in the labor market will be again revealed.

This number has gotten some economists worried. Declining worker productivity suggests that there's less room to accommodate both wage gains and growth without causing inflation, which means the Fed may be forced into action more quickly in response to rising labor costs than it would otherwise want. In general, lagging productivity gains are a retardant to long-term growth potential.

FRIDAY

SWITZERLAND: 3:15 a.m. EST. (9:15 a.m, Zurich) February consumer price index. [In January, CI was -0.4% on-month, -0.5% on-year.]

Deflation is a real concern in Switzerland, especially now that the Swiss National Bank has allowed the Swiss franc to rise in value. It's a primary reason why the SNB is now using negative interest rates to try to deter money from flowing into the Swiss financial system and encourage spending.

BRAZIL: 7 a.m. EST (9 a.m, Sao Paulo). February consumer priced index. [In January, CPI was +1.24% on-month, +7.14% on-year.]

It's striking that in a world of deflationary pressures, Brazil's biggest problem is runaway inflation. But with its CPI increase now well above the 6.5% top end of the central bank's target range, there's no ignoring it.

CANADA: 8:30 a.m. EST. January international merchandise trade. [In December, exports were +1.5% on-year, imports+2.3% and the trade balance was -$649 million.]

With falling oil prices eating into the resources export revenue line, Canada will need to see other parts of its export industry pick up the slack. The falling Canadian dollar should assist in that.

U.S.: 8:30 a.m. EST.

Falling oil prices have eaten into the dollar value of U.S. crude imports and so narrowed the deficit but economists will need to look beyond that to determine whether the stronger dollar is having a more dramatic impact on both exports and imports of non-energy goods and services.

The January report was a blowout number and it changed the calculus for the Fed in terms of its rate hike outlook. As we move closer to that policy change, the developments in the labor market will only become more important. A number in line with expectations would likely reinforce expectations for a move in the second half of the year, but anything bigger than that could raise talk of an earlier rate hike.