U.S. financial markets had a generally positive bias last week. But positive sentiment in the equity markets—which seemed to be triggered by indications that the economic downturn is likely to be shallow and some positive flickers in the embattled financial sector—hit a speed bump on Friday, as March payrolls declined by a larger-than-expected 80,000 and the numbers for January and February were revised down.

Next week will be relatively quiet, with only a couple of major economic indicators to be reported. The February trade balance is expected to narrow slightly, reinforcing the fact that foreign trade remains a critical support for the economy. However, consumer sentiment is expected to slide down further in mid-April, as worsening employment market conditions are compounding pessimism about high gasoline prices and lower home prices. Bernanke's massive liquidity injections have soothed frayed nerves in the financial markets so far, and next week will be an important transition to see if markets can sustain further gains in confidence within the credit and inter-bank lending markets.

KEY U.S. DATA RELEASES AND EVENTS THIS WEEK

Thursday, April 10 – Trade Balance (Feb.)

Global Insight: -$57.9 Bil.
Consensus: -$57.5 Bil.
Last Actual: -$58.2 Bil. (Jan.)

What to Look For

• The trade deficit likely narrowed slightly to $57.9 billion in February, from $58.2 billion in January.

Implications

Exports should be up again, but less so than in January, since aircraft exports probably fell. Imports will be held down by an anticipated decline in oil imports, with both volume and price expected to be lower. Foreign trade is a critical support for the economy, and for the first quarter overall should add about one percentage point to GDP growth, as export volumes rise and import volumes fall.

Friday, April 11 – Michigan Consumer Sentiment Index (Preliminary Apr.)

Global Insight: 67.5
Consensus: 69.0
Last Actual: 69.5 (Mar.)

What to Look For

• The preliminary index for April is expected to decline slightly, to 67.5.

Implications

The Reuters/University of Michigan Index of Consumer Sentiment should edge down from 69.5 in February to 67.5 in early April, its lowest level since January 1992. Falling employment, sliding home values, and rising gasoline prices are reinforcing pessimism about consumer finances and the economic outlook.