Chinese economy inflation dataAs the market breathes a sigh of relief on hope that Europe isn't going to fall apart and the unemployment picture isn't getting worse, the focus shifts to China and earnings season.

With the third quarter recently closed, corporate accountants are quickly crunching numbers. This is where the rubber meets the road. Alcoa (AA) kicks off earnings season when it reports after the close tomorrow, with JPMorgan Chase (JPM) and Google (GOOG) following on Thursday.

But earnings may be overshadowed this week if inflation data out of China is worse than expected.

A World Away, but Right Next Door

We need to start paying attention to things like inflation and growth rates in China, especially now that the country is more than just a supplier of cheap goods and holds the title of the world's second largest economy. That's why this week's consumer and producer price index numbers will be critical.

Price indexes like the CPI and PPI show how much inflation is happening in a country that's growing like gangbusters. Overheating in China would have a dramatic effect around the world because China is one of the few major economies posting strong growth lately.

A recently announced private index said that housing prices declined last month and government-controlled fuel prices were cut because of lower oil prices. These may be positive signs that China won't be a bubble economy and may actually land softly after its rapid growth rate in recent years.

Back Home, Retail Hits Front and Center

The most important data in the U.S. this week will be retail sales data from the Commerce Department, due to hit news wires on Friday. The consensus is for retail sales growth of 0.6%, or 0.3% excluding auto sales, according to Briefing.com.

A surprise one way or the other could drive the market. Consumer spending is still our economy's main driver, and a better-than-expected growth rate could mean consumers are gaining confidence heading into the all-important holiday season.

Are We Going to Get out of This Funk? Stay Tuned!

For now, it appears that the focus on Europe will be overshadowed by China and our more immediate earnings picture in the U.S.

Heading into the coming weeks, it's good to keep in mind that despite what has happened on the stock market in the last few months, earnings were very strong in the second quarter, with more than 70% of S&P 500 companies beating expectations. A continuation of that trend could help us get out of this funk.

We'll also be watching for clues about the future in this quarter's earnings calls. Alcoa, JPMorgan Chase, and Google all have worldwide businesses and may give us some insight into whether demand is increasing, decreasing, or stuck in a rut the way unemployment is.

Motley Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings. The Motley Fool owns shares of Google and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of Google.


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CWaite1943

Why would anyone with an ounce of sense be surprised? When you have people liike Bernanke and Geitner who are huge advocates of producing $triilions out of thin air, inflation is the inevitable result. Simple economics 101.

October 10 2011 at 4:57 PM Report abuse +4 rate up rate down Reply