Bank of England Monetary Policy Meeting Minutes (December 7-8)(9:30 GMT, 4:30 EST)
Outlook: Traders will be scrutinizing the minutes from the most recent Bank of England monetary policy meeting in establishing a definitive direction in future rate decisions. Holding the benchmark repo steady at 4.5 percent for the fourth month running, central bankers cited continued vigilance of inflationary pressures in light of further sluggishness in consumer consumption. However, recent statements following the meeting, and stated by different sources, may be indicating otherwise. Governor Mervyn King and Deputy Governor of Monetary Stability Rachel Lomax have indicated an intention by policy makers to form sound policy given economic developments in the region. Simply, the Monetary Policy Committee will elect to "sit on their hands and see" how economic factors pan out. However, contrary to those statements, recent suggestions from Economist Charles Bean indicate a very good possibility of a rate cut in the next six months. Speaking with the Sunday Times, Bean stated that the drop in inflation from 2.5 percent to 2.1 has alleviated some pressure on Bank of England projections. However, what remains a concern is the persistent downturn in consumer interest. The result could be looser monetary policy, or a rate cut, in order to spur growth which could very well place further downside on the underlying currency.
CBI Distributive Trades Survey (JAN)(11:00 GMT, 6:00 EST)
Consensus: -20
Previous: -23
Outlook: Declining to the lowest readings on record, the December distributive trades survey by the Confederation of British Industry is expected to rebound. Hitting a negative 23 reading last month, the report is expected to reflect a bump up in retail volume, pushing the net difference slightly higher to a negative 20 reading. Positive for the economy and ultimately the underlying currency, the results may be only temporary and lead to misplaced speculation of a formidable stay on interest rates. The one reason why, increases in retail volume look to be directly tied with the holiday season. Subsequently, once the holiday season passes, consumer consumption may in fact remain a cellar dwelling factor come the new year. This would lead central bankers to continue their projections of slower growth and continued consideration of a 25 basis point rate cut, leading to further downside for the sterling.
Previous: Retail sales volume declined the fastest in 22 years in the month of November as rising unemployment, higher inflation and pessimistic confidence hampered the run up to the Christmas season. With manufacturing and production slightly lower in the recent months, unemployment has ticked slightly higher as companies look to trim costs by cutting personnel. Additionally, inflation remained relatively high even as energy costs dipped slightly in the month. Lower than the record $70.85 set in August, crude oil benchmark prices remained lofty and, for the most part, above the $60 a barrel mark. This has subsequently sapped disposable income by the employed leaving little to feed consumption habits. As a result, coupled with slashed growth forecasts by the IMF and Chancellor of the Exchequer, consumers are left feeling "down in the dumps' and unwilling to part with what little cash they may have. With the expectations balance dipping to a *23 reading, the report is offering suggestions that a rate cut may be considered in the near term by central bankers in efforts to boost growth in the overall economy.
U.S. Gross Domestic Product Annualized (3Q F)(13:30 GMT, 8:30 EST)
Consensus: 4.3%
Previous: 4.3%
Outlook: Following in line with earlier preliminary figures, gross domestic product should finish at the 4.3 percent growth rate posted back in November. Proving the resiliency of the world's largest economy, the report released by the Commerce Department is expected to show continued signs of strength from all sectors. Upticks in consumer consumption, boosted by consumer spending rises of 4.2 percent, should equal increased capital investment spending as well as investment in homebuilding. Manufacturing has also ticked higher as seen for example in Chicago. The index of manufacturing in the Chicago area expanded for the third straight month according to the National Association of Purchasing Management. All in all, this is relatively impressive as the economy recovers from the devastation of two hurricanes in the Gulf Coast as well as adverse effects created by record high oil prices during the year. As a result, with expansion rising above the earlier third quarter estimate of 3.8 percent, expectations continue to run high of further rate hike scenarios by Federal Reserve policy makers going into the new year. Although announcing slightly more dovish commentary following the last rate decision, speculation is leaning towards a continued tightening bias as central bankers remain preventive, fodder for the dollar bull.
Canadian Retail Sales (MoM) (OCT) (13:30 GMT, 08:30 EST)
Consensus: 0.3%
Previous: -0.9%
Outlook: Sales among Canadian retailers are expected to recover in October as vehicles balance out and consumer confidence strengthens. Economists forecast retail sales to increase 0.3 percent for the period, while the core indicator excluding vehicles is expected to fall 0.4 percent; a dramatic shift from the previous month's release. Alleviating much of the burden for the indicator that was present in the previous month, car sales actually rose 3.3 percent in October as easing gasoline prices drew potential buyers back into dealer's showrooms. The jobless rate sank to a 30-year low 6.6 percent in October riding on the strength of the economy, while prices sank 0.5 percent following a record 0.9 percent increase in September. Domestic consumption, which accounts for nearly half of the economies gross domestic product is becoming increasingly more important with the country's currency making exports more expensive to buyers abroad. This growth could be jeopardized if domestic spending begins to detract from expansion. With economic growth so strong over the past half year, monetary policy officials have been able to concentrate on inflation, leading them to begin a string of interest rate hikes.
Previous: Retail sales in the world's eighth largest economy, fell an unexpected 0.9 percent for the month of September solely due to a plunge in car sales for the period. Excluding volatile new vehicle, retailers actually experienced the largest increase in sales in eight months over the period. A 1.7 percent increase in the core measure fare outpaced expectations with spending among consumers increasing in 14 of the 19 component categories. Contributing the most positive results for the indicator were purchases of furniture, electronics and clothing. Sales of electronics rose 0.8 percent, while those of furniture and clothing rose 2.0 and 2.7 percent respectively. However, despite the strong showing in the majority of the components; the main indicator was unable to shake the large reduction in car purchases. Automobile sales for the month of September dove 11 percent, the largest decline in nearly seven years, as dealer incentives ended and higher energy costs made Canadians think twice before investing into the more expensive proposition of car ownership.
Richard Lee is a Currency Strategist at FXCM.