1. Bank of Japan Rate Decision
2. UK GFK Consumer Confidence Survey
3. Canada Gross Domestic Product
4. Chicago Purchasing Manager's Index

Bank of Japan Rate Decision

Outlook: The Bank of Japan is expected, yet again, to stay its effective interest rate at zero percent.  Officials have been explicit in expressing their intentions of caution so as not to move rates too early and erase all of the progress made against deflation.  Although the Bank's three conditions have yet to be met for considering a relaxing of the benchmark lending rate, economic indicators have improved markedly since the last meeting.  Unemployment contracted to 4.2 percent of the population, a seven year low.   Despite the strong show in the labor market, consumers have not yet put their yen back into the market.  Retail sales and household spending were disappointing over the month of September.   Sales by retailers fell 0.8 percent against expectations of a 0.2 percent rise.  Spending by households headed by a worker also contracted over the period 0.2 percent, far below the previous month's 3.2 percent.  The business sector has seen positive growth with industrial production rising 1.1 percent in August and 0.2 percent in September.  Demand from abroad will also help to strengthen the economy and price growth.  The trade surplus grew 957.0 billion yen.  But with all these positive indicators, inflation still remains decisively absent.  Inflation across the country fell 0.3 percent on an annual basis, while the headline read contracted a more reserved 0.1 percent in September from the year before.  Some officials have speculated that deflation will end near the beginning of 2006, with a rate hike expected in the second quarter of that year; however growth remains questionable going into the future.  Subsequently, Bank of Japan officials have been mum on a possible time-table for rate hikes in the future

Previous: By another vote of 7-2 on September 12th, the Bank of Japan decided to keep the official cash target between 30 and 35 trillion yen and the effective interest rate at zero. An expanding labor market, increasing exports, and strong machine orders have all contributed to growth in the Japanese economy, which has been positive for three consecutive quarters. In spite of this, deflation in Japan continues and consumer spending has taken a hit in recent months. The Bank estimates that deflation will cease towards the end of this year, bringing increasing prices to Japan for the first time in seven years. According to Governor Fukui, this will mark a “critical period” in the Bank's decision to bring an end to its extremely accommodative policy. A premature increase in lending rates, however, could prove disastrous for the Japanese economy, as it would reverse the progress made against deflation in recent years. To avoid such disaster, the Bank has said it will not raise rates until core consumer prices stop falling consistently for a few months. Additionally, policy makers must be optimistic about the overall state of the economy and must be convinced that prices will not begin to slide again. With this in mind, economists expect the first increase in rates to come towards the end of the second quarter next year.

UK GFK Consumer Confidence Survey (OCT) (10:30 GMT, 05:30 EST)
Previous:     -5
Outlook:    -5

Outlook: Economists expect the read on consumer confidence to remain unchanged at a year low of -5 for October as the state of the British economy remains dim.  Although numbers for September as far as spending and sales have been slightly better than expected, they were not stellar and sentiment amongst British consumers is still that of disconcertment.  Despite the fall of oil prices during the month to well below the record prices seen at the beginning of September, gas prices have remained well above what consumers are used to and inflation is at its highest in 8 years, causing consumers to reconsider their spending habits and question the state of the economy.  This again puts the Bank of England in a very tight spot.  In order to curb inflation and ease the price burden on consumers, the bank has to stay or raise rates.  However, doing this will even further hurt the already slow economic growth of the country.  Dropping interest rates again to attempt to jump-start the economy however could catalyze inflation.

Previous: British consumer confidence fell for the second month in a row in September to its lowest level in 11 months.  The index fell from -4 to -5 from August to September, as economists predicted that the index would remain unchanged.  This drop signaled that consumer spending would continue to fall, being squeezed by high oil prices.  It also indicated that the decrease in the interest rate that the Bank of England decided on a month earlier to help boost the economy was not having the desired effects.  Rising oil prices and inflation are keeping consumers wary of spending and unconfident in the strength of their buying power.  Due to a continuous lull in domestic demand, growth in the British economy is expected to expand 2 percent in 2005, cut from 2.5 percent during the month, the slowest since 2002.  Consistently low consumer outlooks are signaling that this slow growth will be hard to correct. 

Canada Gross Domestic Product (MoM) (AUG) (13:30 GMT, 8:30 EST)
Consensus:     0.4%
Previous:    0.2%

Outlook:  Expectations are running high of another good showing for gross domestic product in Canada, set for release on Monday.  Leaning once again towards a consensus 0.4 percent rise, estimates run continually higher on still lofty prices of oil and subsequent energy exports that feed global demand.  Evidence of this could not be clearer than the most recent U.S. trade balance.  The trade deficit figure in the world's largest economy widened once again on higher valuations and subsequent volume of oil imports.  This bodes especially well for the Canadian economy as energy exports contribute close to 20 percent of overall growth.  However, inflation still remains an inherent cost as expansion is usually followed by higher costs on the consumer level.  Contributing to the notion are strengthening levels of consumer demand and spending along with a robust housing sector.  As a result, although central bankers have already raised the short term rate to 3 percent, there remains plenty for Canadian bulls in anticipating further hikes.

Previous:  Expanding at a 0.2 percent rate for the month of July, the world's eighth largest economy continues to steam ahead on June's increase in light of failing to beat expectations of a 0.3 percent jump.  Subsequently, the rise in growth is being led by expansion in the energy and mining sectors, as well as retail trade and transportation industries.  Moreover, record high energy prices have induced higher production of energy commodities like oil and coal in order to match rising global demand and as a result has bolstered solid trade balances.  As well, domestic demand remains strong in the economy has housing valuations and sector activity have bounced with stronger retail sales figures in recent months.  As a result, with production on the upside and a strong infrastructure bolstered by individual spending and capital investment, Governor David Dodge and policy makers look to certainly boost short term interest rates once again in order to take preventive measures against future inflation.

Chicago Purchasing Manager's Index (OCT) (15:00 GMT, 10:00 EST)
Consensus:     57.5
Previous:    60.5

Outlook: Manufacturing activity in the Chicago area is expected to contract in October to an index read of 57.5.  An index number above 50 means the number of business managers reporting improved business outnumbered those saying business slowed.  Siding with expectations for Chicago manufacturing likely takes much of its justification from the drop in New York area production reported with the Empire indicator.  Manufacturers in this region slipped below expectations of growth to a reading of 19.0 to post an actual 12.1, the lowest level since June.  Chicago manufacturers have become less optimistic over the state of their sector as raw material prices remain persistently high and demand for their goods is still uncertain.  The cost for raw material, especially metals and energy products, has either remained high or rallied to new highs.  Seemingly an almost guaranteed optimism booster were oil prices which dropped from their $70.80 per barrel record high, only to be met with a floor of $60 that is well protected.  Furthermore, with winter demand right around the corner, cheaper energy prices are not likely to see another trend of lower prices anytime soon.  Demand also remains questionable in the coming months.  Fallout from both hurricanes have still not completely been filtered out and yet the expected boost to manufacturing from the rebuilding effort has also not materialized.

Previous: Chicago PMI, one of the first monthly releases after Hurricane Katrina, jumped to 60.5 in September, exceeding mean expectations of 51.0, and far better than the previous 49.2 number reported in August, the measures lowest reading since April 2003.  The stronger than expected read in indicator may indicate that manufacturing in the Chicago area were more resilient to the damaging affects of Hurricanes Katrina and Rita than originally estimated.  The jump over the period was partially due to businesses rebuilding inventories after summer sales rid companies of much of their excess stock.  Demand was also magnified by the need for goods in the Gulf Coast regions as initial response to the devastated areas boosted sales.  More enlightening however was that costs paid by managers to vendors as measured by the index rose by the most since October 1963, driven by rising oil prices, also an effect of the two storms.  This was yet another strong inflationary figure adding support to the Fed's plan for further rate hikes.  Despite the expansion in the industry, this huge jump in expected prices shows that manufacturing could be weakening as managers feel they have less control over prices paid.

Richard Lee is a Currency Strategist at FXCM.