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UK Data
 

• Monday 12.01am Rightmove House Prices for December. Previous 7.9% y/y
• Tuesday 9.30am CPI for November. Previous 0.5%m/m & 2.1%y/y
• Wednesday 9.30am BoE release minutes of prior (5-6^th Dec) MPC meeting
• Wednesday 11.00am CBI Distributive Trends for December. Previous 13.0% bal
• Friday 9.30am Retail Sales for November. Previous -0.1% m/m 4.4% y/y

Sterling lost ground on the US Dollar last week while holding firm against the Euro. After this month’s interest rate cut, we witnessed sustained inflationary pressures within the economy. Input prices rose faster than expected, up 1.7%m/m; its fastest rate since last July with food and crude oil being the main components. Secondly, output prices rose by 0.5%m/m in November, taking inflation on the producer price index, to 4.5%y/y, its highest since 1991. The continued deterioration of the housing sector was further cemented by November’s RICS survey confirming that prices fell at their fastest rate since May 2005. The house price balance dropped to -40.6, from -23.4 in October coupled with the fifth consecutive month of falling agreed sales. This week’s highlights will be November’s CPI figure to establish how inflationary pressures have filtered through to the wider economy and the BoE minutes; providing an insight into the rate cut earlier in the month.
  

US Data

• Monday 1.30pm Current Account for Q3. Previous -$190.8bn
• Monday 1.30pm EmpireState Survey for December. Previous 27.4 (index)
• Tuesday 1.30pm Building Permits for November. Previous £1.178m
• Tuesday 1.30pm Housing Starts for November. Previous £1.229m
• Thursday 1.30pm Initial Claims for 15^th Dec.
• Thursday 3.00pm Leading Indicators for November. Previous -0.5% m/m
• Thursday 5.00pm Philadelphia Fed Survey for December. Previous 6.8 (index)

US Dollar resurgence was the major theme last week as it rallied on stronger than expected retail sales and producer prices data. The Fed cut both the benchmark federal funds and discount rates for lending to banks by 0.25% to 4.25% and 4.75% percent respectively. The move disappointed U.S. equity investors who were hoping for cuts of half a percentage point in both rates. In contrast, Friday’s November CPI figure rose at its fastest rate for two years at 0.8%; with energy costs accounting for 70% of this increase. The Fed remains vigilant over these inflationary pressures, however revitalising stagnating growth takes precedence in the uncertain economic climate.

Euro Data

• Monday 9.00am Flash Composite PMI for December. Previous 54.1 (index)
• Monday 9.00am Flash manufacturing PMI for December. Previous 52.8 (index)
• Monday 9.00am Flash Services PMI for December. Previous 54.1 (index)
• Tuesday 10.00am Trade Balance (nsa) for October. Previous €3.1bn
• Tuesday 10.00am Trade Balance (sa) for October. Previous €3.9bn

The Euro was left treading water after a week of mixed data from the EU. Tuesday’s German ZEW survey indicated investor sentiment had deteriorated to a 15 year low in December; depressed by the bleak US economy outlook and financial turmoil. In contrast, Eurozone industrial production was slightly stronger than expected in October at +0.4%m/m, led by rising capital goods output despite a month-on-month drop in energy output. We saw Friday’s harmonised inflation figure confirming the upside risks, as expensive oil and food boosted Eurozone inflation in November to its steepest level in six and a half years. A rise of 0.5%m/m and 3.1%y/y was above market expectations of 3.0% and the ECB’s target level of 2.0%. The ECB left interest rates on hold this month as it continues to weigh up the adverse conditions stemming from the credit crunch in line with inflationary pressures.

Interest rate outlook