With plenty of European drama in the markets, traders will turn their attention briefly to economic events across the continent to Asia.  Scheduled for the session are three key Chinese reports:  industrial production, retail sales and consumer prices.

Industrial output in the world’s second largest economy is expected to remain positive for the month of October.  Little has changed in the way that factories have been churning along – increasing the likelihood of another double digit monthly gain.  For all of last month, output is expected to rise by 13.4%, slightly below August’s pace.  Retail sales are anticipated to additionally hold steady on a year over year basis.  Aside from growing credit concerns denting economic growth in the short term, consumers are expected to remain relatively resilient last month.  Forecasts are for retail sales to increase by 17%, matching the pace set back in September.

The loan sleeper report of the 3 will be the consumer prices report.

Although consumer inflation is expected to remain relatively high, rising at an annual pace of 5.4%, it is still anticipated to fall below September’s 6.1% pace.  This would be the third straight decline for the National Bureau of Statistics report from a high of 6.5% and may signal that a looser monetary policy could be on its way for the Chinese economy.  Leading the drop in inflation will likely be declining vegetable and food prices.  One of the main causes of recent consumer prices hikes, vegetable prices have been falling throughout China, as well as the rest of Asia.  According to Statistics Korea last week, South Korean consumer prices last month dropped on a 14% plunge in vegetable prices.

Speculation of a looser monetary policy, combined with recently reported slowdowns in manufacturing and overall growth, could hurt the short term growth prospects of both New Zealand and Australia – two countries with major trade ties to China.  As a result, sentiment is likely to depress any short term gains in the the countries’ currencies if it is revealed that looser monetary policy is on its way.  The market picture could potentially worsen if additional reports – on output and retail sales – also show similarly negative results.