The second focus is on the European finance minister two-day meeting that begins today. The idea of a larger firewall until the middle of next year is the main issue, but should Spain or Italy need assistance the firewall is likely to prove insufficient. There may also be some agreement on personnel changes, including Juncker's replacement (likely Germany's Schaeuble). We remain concerned that below the surface, the situation in the eurozone is actually deteriorating. It is not only a matter of a deeper economic downturn, but several policy developments are worrisome. An example of this deterioration Friday is the report out of Germany that the Bundesbank has indicated that it will no longer accept government-backed bank bonds as collateral from Greece, Portugal or Ireland. The European Central Bank meets next Wednesday rather than Thursday due to the Easter holiday. On the data front, earlier today France reported its first increase in household consumption in four months (February 3.0% month over month vs 0.2% consensus). On the other hand, Germany reported an unexpected decline in February retail sales (-1.1% vs expectations of +1.2% following a 1.2% decline in January). The firmer CPI flash figures may have the ECB see upside risks to inflation, even as the real economy stagnates or worse.
The third focus Friday is on the state of the U.S. economy. February personal income and consumption data are expected to be firm. A 0.6% rise in PCE would be the strongest since last September. Personal income is expected to post a healthy 0.4% increase. However, the March Chicago purchasing managers index may come in softer, perhaps foretelling a moderation in next week's national figures. Moreover, the risk seems to be on the downside for next week's report of March auto sales and nonfarm payrolls. Before the markets open on Monday, Japan will report the Tankan Survey. A modest increase in the diffusion index for large manufacturers to -1 from -4 is expected and an anticipation of a positive reading in June. Capex plans are likely to remain cautious, with a rise of about 1%. In addition, China will report official PMI. In the past, when the Lunar New Year falls in February, the March PMI has tended to rise. A reading above 50 might ease some concerns about the pace of the slowdown in the world's second largest economy and help support regional currencies and commodity producers. There is also some talk that China will cut reserve requirements this weekend as the government has declared both Saturday and Sunday, together with Monday through Wednesday, of next week an official holiday.