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UK Data

• During the week Halifax House Price Survey for March. Previous -0.3%m/m & 4.2%y/y
• Tuesday 12.01am Nationwide Consumer Confidence for March. Previous 78.0 index
• Wednesday 9.30am Industrial Production for February. Previous -0.1%m/m & 0.4%y/y
• Wednesday 9.30am Manufacturing Production for February. Previous 0.4%m/m & 0.6%y/y
• Thursday 9.30am World Trade Balance for February. Previous -£7.5bn
• Thursday 12.00am BoE MPC Interest Rate Announcement

Sterling recovered from record lows against the Euro last week despite a flurry of disappointing economic data. The service sector which accounts for approximately three quarters of the UK economic growth, weakened considerably in March, falling towards the crucial 50 mark that separates growth from contraction. Price pressures showed little sign of abating with input costs accelerating to fresh highs, raising the likelihood that inflation could rise further. UK manufacturing growth remained stable in March but likewise, the prices charged by producers rose at their fastest rate since 1995, as high oil prices and a weak Pound pushed up raw material costs. Matching the evidence of slower growth and intense price pressures shown in recent data, the survey will not make life any easier for policymakers weighing the arguments for a further cut in interest rates. The UK should see a fairly uneventful build up to the April BoE interest rate decision on Thursday, where the MPC are now odds on favourite to cut rates by 0.25%.

US Data

• Monday 8.00pm Consumer Credit for February. Previous $6.9bn
• Tuesday 3.00pm Pending Home Sales for February. Previous 0.0%m/m
• Tuesday 7.00pm Fed release minutes from prior (18th March) FOMC meeting
• Thursday 1.30pm Trade Balance for February. Previous -$58.2bn
• Friday 3.00pm University of Michigan Sentiment Survey (Preliminary) for April. Previous 69.5 index

The Dollar was boosted last week by relative stability on global equity markets. The increasing signs of calm fed by the notion that much of the bad news related to the credit crisis was now out in the open eased the pressure on the Federal Reserve to cut interest rates aggressively at its next meeting at the end of April. Indeed, market expectations shifted from expecting a 0.5% rate cut towards predicting a 0.25% move from the Fed. However, Friday’s weaker than expected US employment report tempered the Dollar’s strength after US employers shed 80,000 jobs in March. The decline was the third monthly drop in succession while the unemployment rate rose to 5.1%, the highest rate since September 2005. This week’s highlight will be the FOMC minutes from the March meeting, which delivered a 0.75% cut, though less aggressive than expected.

EURO Data

• Wednesday 10.00am Eurozone GDP (Final) for Q4. Previous 2.2%q/q & 0.4%y/y
• Thursday 12.45pm ECB Interest Rate Announcement, followed by news conference at 13.30pm

The Euro fell from record highs against the Pound and Dollar last week as signs of a slowdown in the Eurozone weighed on the single currency. News of further substantial writedowns at UBS and Deutsche Bank suggested problems emanating from the US subprime debacle were spilling over into Europe. Furthermore, Eurozone retail sales unexpectedly fell in February, the main cause being that rising inflation driven by increasing energy and food costs have eroded consumer's purchasing power. The ECB remains in an uncomfortable position, it has maintained its benchmark interest rate in an attempt to reign in inflation, but the economy continues to suffer. The increasing risk of slowdown in wake of the credit crunch may force them to consider cutting rates in order to avoid a prolonged contraction. Thus market attention now focuses on Thursday’s rate announcement and perhaps more importantly the tone of Jean Claude Trichet’s rhetoric in the following news conference.

Interest rate outlook