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UK Data

• Monday 9.30am PPI Input & Output for March previous 19.3%y/y & 5.7%y/y
• Tuesday 12.00am BRC Retail Sales Monitor for March previous 3.9%y/y
• Tuesday 12.01am RICS Housing Survey for March previous -64.1
• Tuesday 9.30am CPI for March previous 2.5%y/y
• Wednesday 9.30am Average Earnings for February previous 3.7% 3m avg.

As widely expected, the Bank of England cut interest rates by 0.25% to 5.00% at last week’s meeting following signs that the UK housing sector is continuing to slow. According to Halifax, the UK’s largest mortgage lender, house prices fell 2.5%m/m in March, the biggest drop since 1992. However, casting aside the housing market and the troubled financial services sector, there is evidence to suggest that the rest of the economy is holding up reasonably well. Indeed, both industrial (+1.2%y/y) and manufacturing (1.9%y/y) production exceeded the consensus forecast last week. This week, the focus is on inflation data where the market will be looking to gauge whether or not there is room to cut interest rates further in the months ahead.

US Data

• Monday 1.30pm Retail Sales for March previous -0.6%m/m
• Tuesday 1.30pm Empire State Survey for April previous -22.2
• Tuesday 1.30pm PPI for March previous 0.3%m/m
• Tuesday 2.00pm Treasury International Capital System (TICS) for February previous $62.0bn
• Wednesday 1.30pm CPI for March previous 0.0%m/m
• Wednesday 1.30pm Housing Starts for March previous 1.065m units
• Wednesday 2.15pm Industrial Production for March previous -0.5%m/m
• Thursday 2.00pm Philly Fed Survey for April previous -17.4

Last week proved indecisive for the Dollar with the lack of meaningful data resulting in the absence of any directional bias. The highlight was the release of the minutes from the Fed’s meeting in March which suggested that the period of aggressive monetary easing might be over. Instead, it’s likely that they will switch gears, moving to smaller cuts as they ponder how low to take rates. There were further signs of deterioration in the housing market with pending home sales falling 1.9% in February whilst consumer confidence fell to a 26 year low according to the University of Michigan. This week sees a plethora of data, the highlights being retail sales on Monday and housing starts on Wednesday to gauge whether the monetary easing of the past six months has helped the US consumer.

EURO Data

• Monday 10.00am EU Industrial Production for February previous 3.8%y/y
• Tuesday 10.00am German ZEW (Economic Sentiment) survey for April previous -32.0
• Wednesday 10.00am EU HICP for March (F) previous 3.3%y/y
• Thursday 10.00am EU Trade Balance for February previous -€10.7

The ECB conformed to market expectations last week and kept interest rates unchanged at 4.00%. In his accompanying statement, Trichet made reference to unwelcome volatility in FX markets, suggested that tensions in the financial markets “may last longer than expected” and highlighted his ongoing concerns about the credit crisis. This was followed by the G7 meeting over the weekend where there was further talk about the potential risks to global economies and financial stability from sharp movements in major currencies. Nevertheless, with inflation running well above target, there appears little scope for cutting interest rates in the months ahead leaving the ECB facing a tricky balancing act. This week’s highlights include the German ZEW survey but the main focal point will Wednesday’s inflation data for an indication on whether or not price pressures are going to continue preventing the ECB from cutting rates in the months ahead.

Interest rate outlook