Data from the US dominates the news flow this week.
But there are also some important figures being issued in Europe that will tell us if the economy has been hurt by the debt problems undermining confidence.
America’s producer and consumer price indexes will be watched closely for any more signs of incipient deflation.
Figures for Europe and the eurozone are also due for release as well.
Price growth has been slowing in the US (and Europe) now for several months and the increases in the year to April were lower than expected.
In fact both measures could be negative for May.
The PPI for May is forecast to fall by half a per cent, compared with an 0.1% fall in April.
The core PPI (after excluding food and energy prices) is tipped to be up 0.1% in May, compared with April’s rise of 0.2%.
The CPI for May, due on Thursday, is forecast to be down 0.2%, compared with an 0.1% drop in April while core CPI for May is forecast to be up 0.1% after being steady in April.
The importance of this price movement can’t be underestimated; with the huge overhang of unemployment and output still well short of trend, there are absolutely no inflationary pressures in the US economy.
At the moment it’s a case of disinflation, but it could very quickly become deflation if the output gap in the US and Europe is not bridged by the end of this year.
And that means interest rates will remain at their current record low setting for months and months to come.
The Bank of International Settlements said at the weekend it expected US rates to remain at their current level until well into 2011.
A period of sustained deflation (even around 0.1% to 0.2%) will push real interest rates up, providing a slightly tightening of monetary policy to go with the impact of the stronger dollar (up 20% in the past year against the euro).
This week also sees industrial production data from the Fed, which is forecast to rise 0.9% for May, compared with a gain of 0.8% in April.
It will still be well under the long term trend in the US economy, illustrating the continuing downward pressure on inflation from the so-called output gap.
We will also get a survey of home builders and housing starts, both of which are likely to be soft in the aftermath of the expiry of the first home buyers tax credit, further adding to the growing impression that the housing sector has turned down again.
The Standard & Poor’s 500 index is now down 10.3% from its April 23 closing high for the year, and considered in correction territory.
The three major US stock indexes finished with gains for the week, with the Dow up 2.8%, the S&P 500 up 2.5% and the Nasdaq up 1.1%.
One corporate event to watch is the initial public offering of the CBOE, North America’s last independent major financial exchange. Trading is expected to start tomorrow.
Federal Reserve Chairman, Ben Bernanke, speaks on financial reform on Wednesday.
BP CEO, Tony Hayward, appears before the US House of Representatives Energy and Commerce Subcommittee on Thursday to testify on the company’s role in the April 20 Deepwater Horizon oil rig explosion and the continued oil leak in the Gulf of Mexico.
It will be Hayward’s first appearance at a congressional hearing on the disaster.
Profits will come from two important groups: the big electricals retailer, Best Buy and the freight group, Fed Ex.
Both will tell us something about the health of different parts of the economy.
Best Buy’s outlook for the rest of the year and comments on sales and consumer buying will be of considerable interest after the bigger than expected fall in US retail sales in May.
Fed Ex will tell us how the restocking and logistics side of the US and international economies is going.
It is a major player in just in time shipping and carrying lightweight but high margin goods.
Financial markets will be twitchy on Friday with the so-called "quadruple witching" period, a term used by professional traders for the quarterly settlement and expiration of four different types of June equity futures and options contracts.
The expiries starts on Thursday and usually see increased volatility as investors adjust their derivative positions.
UK and eurozone inflation figures are also released this week.
Eurozone industrial production is also out, which will give us a timely basis to compare both regions.
The Swiss National Bank is likely to leave interest rates steady after its strong intervention in recent weeks to push down the value of the franc.
The trend for slowing inflation in western economies is in stark contrast to emerging markets, where rising food prices and strong economic growth are driving inflation higher.
China’s 3.1% annual rate for the year to May is an example, but is expected to start falling next quarter as food prices fall.
European union leaders and the EC hold a summit on Thursday night, our time, to try and come to an agreement on economic policy.
They will attempt to convince financial markets they can contain a debt crisis through stronger economic policy coordination and strengthen budget discipline.
The 27 EU leaders and the European Commission executive will also release plans for boosting economic growth and creating jobs.
In Australia, a quiet week on the data front, with the main event tomorrow’s minutes from the last RBA Board meeting.
They are likely to add to expectations that rates will remain on hold for a while.
RBA Deputy Governor, Ric Battellino, speaks midweek and his comments will be watched closely for any update on the Bank’s view regarding the problems in Europe.
The Bank of Japan meets to discuss interest rates and a possible new lending plan to help banks and business.
