Looking ahead to next week, the economic data schedule is light in Canada, but heavy in the U.S. with the focus on inflation numbers on Tuesday and Thursday. However, the ongoing effects of Hurricane Katrina will likely continue to overshadow markets too.

In Canada, the numbers all deal with July. Merchandise trade data is out Tuesday, followed by manufacturing shipments on Wednesday and vehicle sales Thursday. CIBC World Markets suggests that, “Healthy figures for July activity could push the (Canadian dollar) into new territory and see the markets put even greater odds on an October rate hike.”

“Rising energy prices and a boom in U.S. car sales should see an impressive lift in Canada’s trade balance, although down the road we look for much less rosy results for non-energy shipments,” CIBC says. “July’s U.S. vehicle sales might also drive a strong month for manufacturing shipments, again, one subject to reversal ahead.”

But, BMO Nesbitt Burns is more sanguine about the data. It says that the trade surplus is expected to narrow in July to $4.5 billion from June’s $4.9 billion level, which marked the high point for the first half of the year.

“Manufacturing activity is also expected to be uninspiring for July, with shipments likely to stay flat, reinforcing the underlying trend of slower growth in the sector,” it adds. “If our call is correct, shipments would be essentially unchanged from year-ago levels, a far cry from the double-digit gains seen at the start of the year.” BMO also says that new motor vehicle sales are likely to post a second consecutive monthly gain of 7% in July, paced by aggressive incentives.

In the U.S., CIBC predicts that, “A data-packed week might see a bit more attention than normal to University of Michigan confidence and the Philly and Empire Fed indexes, the only releases that will deal with the post-Katrina world.” Those are due out towards the end of the week. The goods and services balance data for July is slated for release Tuesday, along with the August producer price inflation numbers. Wednesday brings retail sales for August, along with industrial production and capacity utilization numbers. Consumer inflation data is out on Thursday, along with July business inventories and that Philly Fed Index. Friday brings the Michigan report.

“The economy looked to be softening a bit in August, prior to the storm, as should be evident in a drop in retail sales, and what will be an unimpressive ex-autos, ex-gasoline tally,” CIBC predicts.

On the inflation front, it says, “We’ve had such a low run of core inflation figures that we’re due for a return to trend, but the CPI data will still show a sharp dichotomy between the energy-juiced headline figures and the benign core rate. Energy prices will also tell the story behind a worsening trade gap. Even with all these reports, watch for clarification on the Gulf of Mexico’s oil sector damage to be as important for financial markets.”

BMO Nesbitt says that while Hurricane Katrina should not materially impact August’s economic indicators, the inflation data will see an impact as energy prices were increasing in anticipation of Katrina, and spiked up sharply immediately after landfall. During August, crude oil prices rose 10.7%, on average, while gasoline gained 8.6%, heating oil was up 10.3% and natural gas soared 23.8%, it reports.

“As a result, the headline producer price index is expected to increase 0.7% while the headline consumer price index jumps 0.5%. In both cases, however, core inflation should remain subdued, indicating that there has been little pass-through of high energy prices. . . so far,” it says. The core PPI is expected to edge up 0.1% in August, and the core CPI should increase 0.2%, Nesbitt adds.

Retail sales probably dropped 1.2% in August, Nesbitt predicts, as vehicle sales plummeted 19.0% in payback for July’s aggressive sales incentives. It also expects a 0.3% increase in August industrial production, which will raise the capacity utilization rate to 79.9% in August from 79.7% in July. And, it suggests that the trade deficit will likely widen to $59.7 billion in July, from $58.8 billion in June, pumped by energy prices.

With the heavy economic slate, the earnings schedule is mercifully light, with Intrawest Corp. reporting on Monday, CHC Helicopter Corp. on Tuesday, and Transcontinental Inc., owner of Investment Executive, on Wednesday.

@page_break@The S&P/TSX Composite Index quarterly rebalance will also take place after the bell on Friday, with the additions and deletions announced earlier in the week. UBS Securities Canada Inc. suggests that new additions to the index could include: Rider Resources, Centerra Gold, International Uranium, Cyries Energy, InterOil and Producers Oilfield Services. But, nine companies appear vulnerable to deletion: Minefinders, Sierra Wireless, Vasogen, Husky Injection Moulding Systems, Tembec, AEterna Zentaris, Tundra Semiconductor, Northgate Minerals and Agricore United have failed to satisfy the minimum size requirement for continued inclusion, it says.