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UK Data

• Monday 9.30am BBA Mortgage Approvals for January. Previous 42.1k
• Tuesday 11.00am CBI Quarterly Distributive Trades for February. Previous 4.0% bal
• Wednesday 9.30am GDP for Q4. Previous 0.6%q/q & 2.9%y/y
• Friday 7.00am Nationwide House Prices for February. Previous -0.1%m/m & 4.2%y/y
• Friday 9.30am BSA Mortgage Approvals for January. Previous £4.079 bln

Markets started the week with the news that UK government had decided to nationalise the troubled Northern Rock bank. This put Sterling under pressure as the market became concerned about the integrity of the UK banking system. Sterling extended losses after the release of the MPC minutes showed that all nine members voted for an interest rate cut earlier this month, and David Blanchflower voted for a larger 0.5% cut. However, the pound recovered on Thursday after UK retail sales came in far stronger than expected, dampening expectations for aggressive cuts in interest rates. Figures revealed UK sales grew 0.8% in January, their biggest rise in a year and by far exceeding forecasts. The markets attention now focuses on this week’s plethora of housing data, as some of the recent data has shown a surprising increase in house prices which goes against the perceived market weakness.

US Data 

• Monday 3.00pm Existing Homes Sales for January. Previous 4.9 mln
• Tuesday 1.30pm PPI for January. Previous -0.1%m/m
• Tuesday 3.00pm Consumer Confidence for February. Previous 87.9 index
• Wednesday 1.30pm Durable Goods Orders for January. Previous 5.0%m/m
• Wednesday 3.00pm New Home Sales for January. Previous 604k
• Thursday 1.30pm GDP (Annualised) for Q4. Previous 0.6%q/q Annualised
• Friday 2.45pm Chicago PMI for February. Previous 51.5 index

The Dollar slipped last week as Federal Reserve policymakers cut their forecasts for growth this year but marked up their estimates for inflation. The forecasts made on January 30th, acknowledge that the near term mix of growth and inflation has deteriorated, affirming expectations of further interest rate cuts. The Fed forecasts came as data showed prices rose at an unexpectedly rapid pace in January, raising fears that the US was experiencing at least a temporary bout of stagflation. Both the headline and underlying core rate of inflation which excludes volatile food and energy prices were higher than expected rising 0.4%m/m and 0.3%m/m respectively. In this week’s busy data calendar Q4 GDP data on Thursday looks to be the highlight. The market will look for any backward revisions to growth to gauge the true extent of the US slowdown.

EU Data

• Tuesday 9.00am German IFO Business Sentiment Survey for February. Previous 103.4 index
• Friday 10.00am Eurozone Unemployment for January. Previous 7.2%
• Friday 10.00am Final HICP for January. Previous -0.4%m/m & 3.2%y/y

The Euro rallied to a two week high against the Dollar on Friday following the release of a forecast beating Services PMI data. The data provided a welcome sign that the slowdown seen in the Eurozone may not be as severe as first thought, dampening expectations that the ECB will cut interest rates in the near term. Service sector growth had slowed to near stagnation in January but rebounded significantly this month, according to the survey. The index for manufacturing fell, however, it still showed no sign of any dramatic decline in growth. Turning to this week, the market will be paying particular interest to Friday’s inflation data, to see if it comes in as high as the  flash estimate that was at an all time high of 3.2%y/y.

Interest rate outlook