- Japanese Industrial Production
- French Consumer Prices Index
- U.K. Consumer Price Index
- German ZEW Survey
- U.S. Advanced Retail Sales
- FOMC Rate Decision
- Japanese Tankan Large Manufacturers Outlook
Japanese Industrial Production (MoM) (OCT F) (04:30 GMT, 23:30 EST)
Consensus: 0.6%
Previous: 0.6%
Outlook: Expected to remain inline with earlier prints, the final figure for industrial production is expected to rise 0.6 percent in the month. Household spending boosted by employment and wage growth is underpinning domestic consumption while comparative exports are feeding foreign global demand. Nonetheless, the figure would do nothing but add to an already optimistic spate of economic data. Consumer and business sentiment have rebounded along with spending and manufacturing in the world's second largest economy. As a result, central bankers have suggested that deflationary conditions may in fact be on their way out. This has triggered some speculation that short term interest rates may rise earlier than expected in 2006.
Previous: Japanese industrial production rose in October, having its longest expansion in two years as higher exports and wages sustained growth in the world's second-largest economy. Additionally, spending by companies in order to increase capacity helped Japan's economy expand at an annual pace of 3.3 percent in the second quarter. As a result, coupled with a record surge by the Nikkei equity benchmark, economic fundamentals are pointing to a definitive recovery in the Japanese economy. As a result, nascent speculation has been circulating of an end to deflationary conditions.
French Consumer Price Index (MoM) (NOV) (07:45 GMT, 02:45 EST)
Consensus: 1.7%
Previous: 2.0%
Outlook: Prices are expected to dip slightly in the euro zone region as crude oil leveled off in the month of November. Declining since the $70.85 record high experienced in August, lower energy prices have suggested that inflationary pressures may indeed be temporal. Nonetheless, the index still resides at the top half of the central bank benchmark of 2 percent and will ultimately lead central bankers in considering further interest rate hikes in the near term. However, given the temporal suggestion, a lower inflation suggestion could do otherwise. Slower growth in the region, and newly instituted tax legislation, look to additionally add to economic woes, acting as a deterrent to higher consumer demand. As a result, any increases in the short term rate could adversely affect the region and fall out of favor among FX traders searching for higher rates or return.
Previous: Consumer prices in France rose 2 percent on an annualized basis as higher oil prices are still underpinning inflationary suggestions in the region. An improvement from the 2.4 percent rate seen last month, the figure still continues the mostly higher trend and resides teetering at the central bank's benchmark of 2 percent. However, it remains notable that manufacturers are helping to contain inflationary suggestions by offering deep discounts in order to lure consumers back to the stores. As a result, in line with earlier comments by ECB President Jean Claude Trichet that policy makers will maintain “strong” vigilance, interest rates are expected to rise when central bankers meet. Reflective of the notion are implied rates on the three month futures contract, currently higher at 2.46 percent.
UK Consumer Price Index (YoY) (NOV) (09:30GMT, 04:30 EST)
Consensus: 2.3%
Previous: 2.2%
Outlook: Inflation in the United Kingdom is expected to have fallen for the second month in a row after hitting a recent record 2.5 percent annual inflation rate in August. The consensus among economists is forecasting 2.2 percent price growth in November from the same period a year ago as easing petrol prices are contributing to contracting consumer spending. Petrol prices, which claimed a major part in the furious pace of the inflation rate culminating in September, have fallen significantly as supply shocks from Hurricanes Katrina and Rita settle and a considerable mild start to winter delays demand sparked by the cold. Stagnant consumer spending has also taken the wind out of price growth's sails. Citizens are reluctant to spend their pounds with residual fears of energy scares and signs that the labor market is softening. Despite expectations of easing in inflation, the forecasted level would still be above the Bank's target 2 percent. The Bank of England has passed on rate changes since its August cut with inflation on the forefront of officials' minds. If the target is reached or breached in the coming months, the Monetary Policy Committee will likely shift their focus to economic growth at its lowest level in 13 years by initiating another dovish move.
Previous: The United Kingdom's benchmark measure of price growth, the Consumer Price Index, fell for the first time in over a year in October. Annual price growth in October rose a less than expected 2.3 percent from a year ago as the burden placed on consumers and producers from oil and gasoline began to alleviate. Crude oil prices which rocketed to over $70 per barrel in September, dropped over 10 percent in October. The necessary commodity has been an ever increasing burden on companies' net income, forcing managers to pass costs onto consumers in an effort to salvage slimming profits. Energy prices have also placed a direct load on consumers. Further refined gasoline has also been a problem to consumers' wallets which has been added to higher heating oil costs. However, the British began to see the light in October with gasoline falling 1.4 percent to leave a few more pound's in their pockets.
German Zew Survey (DEC) (10:00GMT; 05:00 EST)
Consensus: 41.0
Previous: 38.7
Outlook: German investor and business confidence is expected to rise to 41.0 in December, its highest level in four months. Investors and business managers are throwing their support back into Europe's largest economy as respectable growth is finding its way back into forecasts. Companies have already seen significant improvements in their futures. Orders from factors rose 18 percent in October, paced by a 30 percent jump in foreign orders. Demand from abroad for German goods has been on the rise through the year with a 13 percent decline in the value of the Euro against the benchmark US dollar making their goods more appealing in the global market. The increasing amount of money flowing into German companies is expected to filter back into the economy through investment and employment which in turn could spur household spending. Initial optimism for returning strength for the economy is already evident. The Kiel Institute for World Economics, which provides twice-yearly reports to the German government, has revised estimates for 2005 growth up to 0.8 percent and 1.5 percent next year. Overall European expansion is also massaging confidence. The European Central Bank released estimates of 1.9 percent growth next year after 1.4 percent in the current one, which contributed in the decision to increase the overnight lending rate off of a five-year historical low. What's more, reduced investment from the business and public is unlikely in the wake of the hawkish move, because officials have explicitly stated that this rate was not one in a string, rather a one time policy shift.
Previous: Investor confidence fell unexpectedly in November to 38.7, indicating that fears over rate hikes and planned tax hikes are eclipsing the strongest growth in the Euro region since early 2004. Economic of expansion of 0.6 percent in the third quarter, up from 0.3 percent in the previous three months, puts the economy on a possible 1.2 percent annual growth path in 2005. This newly released data wasn't what was on investors' and businesses' minds however. Increasingly aggressive rhetoric from ECB Governor Trichet was one issue that was more important. A historical low 2.0 percent overnight lending rate had been held by monetary policy officials in the European Central Bank for five years. With inflation consistently above the bank's 2.0 percent target since February, the words did not miss their target. Taxes have also worried potential investors in Germany's economy. Chancellor-elect Angela Merkel and her CDC/SDU backed government approved a new tax program for the coming years in an effort to alleviate the burgeoning deficit. The tax level for sales and incomes among the highest earners will be on the rise in 2007. Additionally, the Value Added Tax rate will be raised to 19 percent from 16 percent, which will further burden purchases of German goods and services.
US Advanced Retail Sales (NOV) (13:30GMT; 08:30 EST)
Consensus: 0.4%
Previous: -0.1%
Outlook: A moderate increase in sales is expected for November's advanced retail sales measure, worrying economists and officials that fourth quarter growth will be fall far short of the pace of expansion seen for the rest of the year. Sales of retail goods in the US are expected to have received a modest boost from cheaper gasoline prices and the holiday shopping season. The drop in gasoline prices will be both a contributor and a draw on the measure. The price per gallon averaged $2.30 in November, a major decline off of the record price of $3.12 per gallon in the beginning week of September. With Americans having to spend less to fill their tanks, they are able to purchase more goods in the economy. Conversely, sales at the pump are one of the components that factors into the sales release; so a change either way from gasoline prices is not expected. Autos sales will also add strength to the indicator. Sales rebounded from in November, but are still at the second lowest level in 16 months. Spending, paced by vehicles, in the third quarter paced the 3.3 percent growth witnessed in the three months ending in September. Estimates for the current quarter speculate a comparatively weak 1.4 percent. With interest rates continuing to plow higher and energy prices awaiting the cold front, spending could be called into question in the future and GDP will have to answer for it.
Previous: October retail sales contracted a less-than-expected 0.1 percent after vehicle sales slowed the most in four years. The month was mixed in terms of retail spending. The price at gas stations fell, freeing up more disposable income for spending elsewhere in the economy; while being partially balanced by the three percent drop in car sales. Gasoline reached a record $3.12 per gallon in the first week of September, but has been on a depreciation trend since. Vehicle sales, in contrast, sailed in August and September on dealer incentives; but dived in October after the marketing strategy expired. The core measure was a little more encouraging with a 0.9 percent increase over September. A mixture of post-hurricane spending and energy-free induced spending both helped the less volatile indicator to increase by the most in six months.
FOMC Rate Decision (DEC 13)(19:15 GMT, 14:15 EST)
Consensus: 4.25%
Previous: 4.00%
Outlook: Raising short term interest rates for the twelfth consecutive time, Federal Reserve officials are expected to continue the trend, adding another 25 basis points to 4.25 percent in attempting to stem inflation. With manufacturing picking up in recent months, employment healthy and consumer confidence on the mend, output is expected to rise in the world's largest economy. Subsequently, with the expansion, inflation is surely to rise. However, it is evident, at least at the moment that consumer price increases may be reflective of a temporary shock to the economy. Jumping to a record 1.2 percent in the month of September, overall pressures have remained tepid at best, rising 0.2 percent in the October reading. Subsequently, core price have remained tempered, as crude oil prices have dipped 8 percent since around the third quarter. This has led market individuals to question the probability of further increases as we head into 2006. Additionally, slight uneasiness has crept in as the meeting will be incumbent Chairman Greenspan's last. With Bernanke seen as slightly more dovish, albeit incrementally, a new perspective should be interesting as we head into the new year.
Japanese Tankan Large Manufacturers Outlook (Q4)(23:50 GMT, 18:50 EST)
Consensus: 23
Previous: 18
Outlook: Potentially breaking the previous high of 21 in the quarter ending in September of last year, the Tankan large manufacturers outlook is expected to rebound in the fourth quarter. Recent business confidence has been bolstered by a strong surge in domestic equities and a decline in previously high crude oil prices. The Nikkei 225 benchmark index has risen approximately 37 percent on the year and higher since the 13,525 level seen since the third quarter. Last week, the index soared to a five year high and is currently higher for the week at 15,738. Additionally boosting optimism among manufacturers has been a decline in oil prices. Since the previous quarter, crude oil prices have declined 8 percent, relieving some of the pressure of higher costs. Coupled with a higher valued yen, beneficial for exporters, manufacturers may push business confidence higher. Subsequently, capital spending figures may also be underpinned as producers try to fit global and foreign demand.
Previous: Rising less than economists had expected, the Tankan large manufacturers outlook jumped to a reading of 18 compared to estimates of as high as 21. Concern over higher crude oil prices and the lingering effects of Hurricane Katrina dampened producer sentiment in the quarter. Energy prices have risen 50 percent since the beginning of the year and pose a detriment as it places significant pressure on corporate profitability. Coupled with potentially thin demand due to hurricane devastation in the U.S., manufacturers were slightly less optimistic and reduced capital investment in boosting production for global and foreign demand. However, the quarterly action may be only temporary as sentiment continues to reflect positive times ahead with many firms sticking to the overall 16.2 percent forecasted expansion in production spending. As a result, policy officials may be considering the recovery “subdued” at the moment, adding to some downward pressure on the underlying spot.
Richard Lee is a Currency Strategist at FXCM.
Free Festival of Traders Videos
