Wednesday April 11, 2007 - 15:36:23 GMT
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Forex Market News - Economics Weekly - Interest rate decisions in the euro zone and Japan head up aEconomics Weekly
Interest rate decisions in the euro zone and Japan head up a
relatively quiet week for economic data
â€¢ It is a particularly quiet week for UK economic data and events. The RICS house price survey and the February trade balance are both due on Thursday. The BRC Retail sales monitor is out on Wednesday.
â€¢ Recent economic data from the euro zone have been surprisingly strong and have led financial markets to firm expectations of further interest rate increases from the ECB this year. After raising interest rates to 3.75% last month, no change is expected this week but ECB president Trichet may take the opportunity to lay the groundwork for a further hike in the months ahead.
â€¢ The minutes of the US FOMC meeting on 21 March will draw strong market attention on Wednesday. Although interest rates were held at 5.25%, the accompanying statement showed a more cautious Fed judgement towards the need for further tightening. A host of Fed speakers will also take to the stage this week. The main economic data highlights are on Friday, with the February trade balance and April University of Michigan consumer sentiment index due.
â€¢ The Bank of Japan (BoJ) doubled interest rates to 0.5% in February but is unlikely to hike again until the second-half of 2007. The recent fall in consumer prices and a slightly weaker Q1 Tankan survey will keep the BoJ cautious and likely to keep to a gradual path of monetary tightening.
The RICS house price balance has been on a declining trend since October and eased to the lowest in nine months in February, to 24% from 28% in January. The survey still shows house prices are rising but that the pace of price growth has slowed. We expect the price balance in March to have remained close to February, with the limited supply of properties underpinning further price growth. The UK's goods trade deficit surprisingly narrowed to Â£6.2bn in January, from Â£6.9bn in December, the smallest since October 2005. We expect a rebound to Â£6.5bn in February on the back of higher imports. The BRC Retail sales monitor is published overnight on Wednesday and is expected to show high street sales remained buoyant in March, in line with the recent CBI report.
In the US, the March import and producer prices data will attract keen market attention on Thursday and Friday, respectively. We expect both headline price indices to rise on the back of higher crude oil prices. Higher oil prices are also expected to have led to a rise in the US trade deficit to $61bn in February, from $59.1bn in January. Housing market concerns may have weighed on the Michigan sentiment index for a third straight month in April.
Economic data from the euro zone are likely to elicit limited market reaction this week. The German trade and current account figures, on Tuesday, are expected to show that exports remained buoyant in February, underpinning another large trade surplus. French industrial production data are also due and are forecast a show a modest rise based on recent strong PMI data. After the strong German industrial production data last week, this should underpin an increase in February EU-13 industrial production on Friday. We do not expect any major revisions to the headline Q4 2006 EU-13 gdp figures on Thursday.
Jeavon Lolay Senior Economist
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