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UK Data 

• Monday 12.01am Rightmove House Prices for January. Previous 4.8%y/y Actual 3.4%
• Tuesday 11.00am CBI Quarterly Industrial Trends for January. Previous 2.0% bal
• Wednesday 9.30am GDP (A) for Q4. Previous 0.7%q/q & 3.3%y/y
• Wednesday 9.30am BoE release minutes of prior (9-10^th Jan) MPC meeting
• Thursday 9.30am BBA Mortgage Approvals for December. Previous 44.8k

Sterling proved to be the resurgent currency for the most part of last week on the back of higher than expected inflationary data. The price of goods leaving factories rose at their fastest rate for 16 years coupled with CPI recording a 0.6% rise in December; the largest monthly gain for 12 months. The nature of both inflation releases probably contributed to the Bank of England’s reluctance to cut interest rates for a second consecutive month in January. House prices were confirmed to be falling at their fastest rate since the early 1990’s according to the latest RICS report. The data suggests that the pace of decline is accelerating, putting further pressure on the MPC to cut rates in February. However, Sterling lost the majority of its earlier gains as UK retail sales fell unexpectedly in December; at their fastest rate for 13 years as consumers reined in Christmas spending. This week’s data calendar puts the spotlight firmly on the housing sector while the BoE minutes will make interesting reading as a rate cut has now been effectively priced in for February’s MPC meeting.

US Data 

• Thursday 1.30pm Initial Claims up to 19^th January
• Thursday 3.00pm Existing Home Sales for December. Previous 5.0m

The Dollar remained under pressure last week after weak US economic data paved the way for aggressive interest rate cuts from the Federal Reserve. December’s retail sales fell by 0.4%m/m while the November figure was downwardly revised as rising energy costs and the housing slump took its toll on consumers. The dismal housing sector faired no better, as housing starts fell in December, setting their slowest annual pace for 16 years, while building permits, a sign of future construction, dropped to levels not seen since 1993. Additional write-offs from large U.S. financial institutions had heightened speculation that the Fed might cut rates more aggressively, and reinforced bearish sentiment towards the Dollar. However, CPI rose by 0.3%m/m, equating to 4.1%y/y providing a dilemma to the Fed as prices rise while growth slows. The market has fully priced in a 50bp rate cut at the end of the month, while chances for a 75bp cut have risen substantially. On a relatively light week for data this week, the market will focus on the deteriorating housing sector and perhaps an emergency rate cut.

EU Data
 

• Wednesday 9.00am Flash Manufacturing PMI for January. Previous 52.6 index
• Wednesday 9.00am Flash Services PMI for January. Previous 53.1 index
• Wednesday 10.00am EU Industrial New Orders for November. Previous 2.5%m/m

The Euro then lost ground against a host of major currencies on Wednesday after comments from ECB Governing Council member Yves Mersch about the growth outlook for the Eurozone. Eurozone industrial production dipped in November by 0.5%m/m, shrinking in four of its largest economies. Inflation remained steady at 3.1%y/y This week’s release of PMI data should provide the market with a view as to the true extent of economic health on the continent.

Interest rate outlook