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UK Data

• Monday 12.01am Rightmove House Prices for February. Previous 3.4%y/y Actual 5.8%y/y
• Wednesday 11.00am CBI Industrial Trends for February. Previous 2.0% Bal
• Wednesday 9.30am BoE release minutes of prior (5^th Feb) MPC meeting
• Thursday 9.30am Retail Sales for January. Previous -0.4%m/m & 2.7%y/y

Sterling advanced against both the Dollar and Euro for the best part of last week as the BoE signaled scope for further rate cuts was limited. The release of the BoE Inflation Report forecast that UK growth would slow sharply below 2% by the end of the year, while inflation is likely to remain above the Bank’s 2% target and could rise as high as 3% in the short term. January’s consumer price index rose to a 7 month high of 2.2% up from 2.1% in December, although below market expectations. The increased cost of fuel, with oil nudging $100 a barrel last month, prompted the rise, along with higher food prices. The news came amid a separate report, indicating that factory gate inflation rose at its fastest rate in 16 years as the price of goods leaving factories rose 1.0% for the month of January, taking the annual rate up to 5.7%. The markets attention now focuses on the BoE minutes, where we hope to gain a greater insight into how balanced or one-sided the most recent rate cut had been, while we look for a bounce in retail sales after a dismal December figure. 

US Data

• Monday - Market Holiday - President’s Day
• Wednesday 1.30pm Building Permits for January. Previous 1068k
• Wednesday 1.30pm CPI for January. Previous 0.3%m/m
• Wednesday 1.30pm Housing Starts for January. Previous 1006k
• Wednesday 7.00pm Fed release minutes from prior (29-30^th Jan) FOMC meeting

The Dollar weakened across the board last week as Ben Bernanke, Federal Reserve Chairman made it clear that policymakers are more than prepared to lower US interests further in order to revive the slowing US economy. Bernanke stated the economic outlook had deteriorated in recent months and pinned much of the blame on the credit crunch. However, it was encouraging to see US retail sales unexpectedly picking up by 0.3% in January from a 0.4% fall in December, perhaps easing some near term recessionary concerns. In a busy week following an extended weekend, the key highlight of the US data calendar will be the inflation data released on Wednesday. Given the US have slashed interest rates by 2.25% since September, it will be interesting to see if this aggressive stance has stoked inflationary pressures.

EU Data

• Friday 9.00am Flash Manufacturing PMI for February. Previous 52.8 index
• Friday 9.00am Flash Services PMI for February. Previous 50.6 index
• Friday 10.00am Industrial New Orders for December. Previous 2.7%m/m

After the brief period of Euro weakness in recent sessions, we saw the Eurozone turn out on top this week on better than expected growth figures. Eurozone economic growth halved in the final months of last year but still outpaced the US and pointed to a gradual, rather than dramatic, slowdown. Gross domestic product in the 15-country region increased by a stronger-than-expected 0.4% in the fourth quarter of 2007 after a 0.8% rise in the previous quarter.The latest data suggested the effects of a stronger Euro, higher interest rates and the knock-on effects of the global credit squeeze were taking their toll, and analysts warned that such factors would hit growth this year, especially if the US fell into recession. In a relatively quiet week for the Eurozone, the markets attention shifts to flash estimates for both the services and manufacturing sectors as values near the crucial 50 level that defines contraction from expansion.