- Australian Consumer Prices
- Bank of Japan Meeting Minutes
- German IFO Survey
- Bank of England Meeting Minutes
- U.K. Gross Domestic Product
- U.S. Existing Home Sales
- New Zealand Official Cash Rate Decision
- Japanese Merchandise Trade Balance
Australiaâ,"s Consumer Prices (QoQ) (4Q) (0:30 GMT, 19:30 EST)
Consensus: 0.6%
Previous: 0.9%
Outlook: Anticipating that consumer prices will decline 0.3 percent from last quarter further suggests that inflation is slowing in Australia. Lower gas and prescription costs in addition to discounts implemented by retailers to lure shoppers have contributed to the recent decline in overall consumer prices. Additionally, producers may not be relaying rising base costs to consumers as evident through producer prices rising only 0.8 percent from 1.5 percent gain in the 3rd quarter. A lead indicator of inflation, the Reserve Bank of Australia has looked for consistent economic data that could provide insight to future interest rates. Near the target of 2-3 percent inflation, headline inflation is at 3.1 percent while consumer prices gained 2.9 percent on an annual basis. However, weak consumer prices may hinder Australiaâ,"s Reserve Bank from increasing the 5.5 percent overnight interest rate.
Previous: Hoping for a 1.1 increase from 2nd quarter, Australiaâ,"s consumer prices increased less than expected at 0.9 percent. Rising fuel costs on top of fierce competition from China and other Asian countries accounted for disappointing consumer price results. Holding their benchmark interest rate at 5.5 percent since March, soft inflationary data has prevented the Reserve Bank of Australia from increasing rates further as growth seems to continue to plateau. Unless Australiaâ,"s economy produces a slew of positive data, interest differentials will begin to narrow causing foreign investors to turn elsewhere.
Bank of Japanâ,"s Monetary Policy Meeting Minutes (5:00 GMT, 0:00 EST)
Outlook: Minutes from the Bank of Japanâ,"s monetary policy meeting are expected to show positive sentiment for the economy, as government officials raised their outlooks for domestic growth in 2006. Policymakers also left interest rates unchanged at zero percent during the meeting - as they have been for nearly four years - but delivered a hawkish tone where policy makers will be looking to raise rates sometime in the near future. Additionally, there was a 7-2 vote to keep target lending reserves for banks at 30-35 trillion yen (also known as the â,"ultra-easyâ, monetary policy), an effort that would help to increase corporate profits, encourage consumer spending, and accelerate growth. Finance Minister Tanigaki has publicly stated that the Japanese economy is nearing the end of deflation, but Wednesdayâ,"s reading on the consumer price index may be the best indicator as to whether or not inflation is finally rearing its head. The recent slew of positive economic data - industrial production reaching record highs in November, machinery orders up 10.2%, and producer prices notching a 2.2% gain - are all encouraging indications that the Japanese economy is finally on the road to recovery.
Previous: The Bank of Japan once again chose to leave interest rates at zero percent at their last meeting, while maintaining an â,"ultra-easyâ, monetary policy targeting a liquidity range of 30-35 Trillion yen for domestic banks. By keeping rates at historically low levels and flooding the money market with excess cash, the central bank may be able to combat deflationary pressures that have plagued the nationâ,"s economy for nearly seven years. While Bank officials remain upbeat about the prospects for 2006, they have committed themselves to strict requirements for implementing a rate-tightening policy. The financial markets have scrutinized every announcement from the Bank of Japan regarding interest rates, so officials have publicly stated the three conditions that they deem necessary for a change: core-CPI on an annual basis must remain above zero for two consecutive months, there must be no indication that it will slip below zero again, and the economy must be accelerating at a steady pace. The next few months of inflationary data will be critical to traders, as an indication of future rate hikes helps to support the strength of the Japanese Yen.
German IFO- Expectations (JAN) (9:00 GMT, 4:00 EST)
Consensus: 99.8
Previous: 99.6
Outlook: German confidence, measured by the IFO Institute, is expected to slightly increase to 99.8 from Decemberâ,"s 99.6 reading. Earlier this month, the ZEW indicator surprisingly jumped 9.4 points to 71 in January along with unemployment falling the most in 15 years in December keeping German consumers and business consumers optimistic. Furthermore, economic expansion is forecasted for Germany to be 0.7 from 0.6 last week, the strongest figure since the first quarter of 2004. Proving to be a flourishing country, the largest country in the Eurozone has supported and boosted Euro sentiment as a whole. Should tomorrowâ,"s IFO indicator read as expected, it would be the highest in 5 ,½ years. After the Europe Central Bankâ,"s decision on January 12 maintaining the 2.25 percent overnight lending rate, a positive Germanyâ,"s IFO expectation reading will certainly persuade the ECB to make further interest rate hike considerations in the future.
Previous: In December, Germanâ,"s business climate jumped up from 96.7 to 99.6 bolstered mainly by wholesaling and retail sales. Hitting a 5-year high, the ZEW also increased dramatically, indicating that business leaders are becoming more confident in the economy and its future prospects. As a result, the European Central Bank has hinted their concern that such robust business confidence may lead to higher costs in wages and consumer prices, which could lead to inflationary pressures. This may sway central bankers in potentially continuing upon the first rate hike in January, increasing speculation on the market level of a series of rates to come.
Bank of England Minutes (9:30 GMT, 4:30 EST)
Outlook: Central bankers are expected to keep interest rates steady once again at 4.5 percent in light of further up ticks in underlying economic fundamentals. Both manufacturing and industrial production, although only incrementally, have shifted to the positive rising 0.4 and 0.6 percent respectively for the month of November and have contributed to improved undertones. The increases followed massive declines of 0.8 and 1.1 percent in the previous month and look to reflect a recovery in global export demand on a tepidly depreciated pound sterling. Additionally, housing prices have further stabilized with retailers continuing to expect future consumption, continually offering markdowns to lure demand. Subsequently, the only exception looks to be the return of higher energy prices as crude oil and distillate products resumed their upward trend in December and January. Although adding to speculation that higher rates are needed, with policy makers currently focused on consumption another stay looks to be probable in further bolstering recent sales figures.
Previous: Bank of England policy makers reached a decision to freeze rates at the current 4.5 percent as slight up ticks in consumer spending and lower inflation were witnessed in the final months of 2005. According to the British Retail Consortium survey posted January 10th, retail sales rose an annual 2.6 percent in the month of December, bolstered by the Christmas holiday season. Housing prices also rebounded slightly in the month, climbing for the sixth month in seven offering further suggestions of stabilization and good promise for the consumer in the coming months. Separately, consumer price increases moderated for the second straight month after peaking at 2.5 percent in the month of September. With prices rising by 2.1 percent in November, Mervyn Kingâ,"s earlier suggestions look to be playing out as lower energy prices have confirmed the shock value of earlier spikes in commodities on the U.K. economy. All in all, in light of recent positive data, further nascent recovery signs would be needed before speculation on near term cuts looks to abate.
UK Gross Domestic Product (4Q) (9:30 GMT, 4:30 EST)
Consensus: 0.5% (QoQ); 1.6% (YoY)
Previous: 0.4% (QoQ); 1.7% (YoY)
Outlook: Gross domestic product out of the U.K. is expected to increase 0.5% in the 4th quarter, a slight improvement over the meager 0.4% growth seen in the third quarter. While slumping industrial production and weak manufacturing underpinned the slowest quarterly expansion in 13 years, falling oil prices are likely to help provide some support this time around for the second-largest country in Europe. This may have been evidenced in the U.K. manufacturing output report, which increased by 0.4% in November after declining in four consecutive months. The CIPS-PMI data also came in above 50, which is indicative of expansion in the manufacturing sector. While the CBI-Industrial Trends survey came in worse than expected, the export index grew substantially from a -23 to -10, which proves that the manufacturing sector may be finally be on solid footing. Additionally, a 4.0% rise in annual retail sales is giving hope to policymakers that consumer strength is on the rise again - which accounts for over half of GDP growth. Given the bullish news out of the U.K., a reading to the upside seems very likely and should help to quell any fears that the Bank of England will cut interest rates anytime soon.
Previous: GDP faltered considerably in the 3rd quarter, posting a 0.4% gain that marks the slowest expansion in 13-years. A recession in manufacturing and lackluster consumer spending weighed heavily in the U.K., with most of the decline being attributed to record high oil prices. Consequently, rising input costs to producers dampened industrial production, and also made consumers more hesitant to spend their money as they took a hit at the gas pump. Additionally, stagnation in housing prices and rising unemployment contributed to the slowing economy. On a positive note, the services sector - which accounts for roughly three-quarters of GDP growth - was up 0.7%. With many speculators already voicing a bearish outlook for 2006, the next few months of economic data will have to surprise to the upside to change the growing consensus.
U.S. Existing Home Sales (DEC) (15:00 GMT, 10:00 EST)
Consensus: 6.87 Million
Previous: 6.97 Million
Outlook: Existing home sales in the worldâ,"s largest economy are expected to decline for the third straight month as the cost of borrowing money rises and overall demand begins to top out in the sector. For the month of December, expectations hover a decline estimate of 6.87 million units, a comparable dip from the 6.97 million units seen in November. The dip is quite unexpected as housing starts have been on the decline for the past eight months with further declines keeping residents in their existing homes. Contributing to the overall decline in sales looks to be the trickling effects of the previous eight interest rate increases as longer term mortgage rates have increased from record lows of 5.53 percent a year ago to current levels above 6 percent. Ultimately, a continuation of the current decline could spark further notions of a housing bubble deflation leading to increased concern over the future of overall economic growth. Housing and property valuations contributed to over 50 percent of overall growth in 2005.
Previous: In November home sales dropped 1.7 percent to only 6.97 million homes sold on an annualized basis. Sales of existing homes fell to an eight month low, leaving more residential properties available for purchase on the market since 1986. Existing home purchases slowed all over the United States from their June record of 7.35 million annually. Subsequently, Novemberâ,"s weak home sales are the lowest since March, when home sales were only 6.87 million. Analysts are blaming the slide in home sales on housing affordability, which was at a 14-year low in the third quarter. Additionally, mortgage costs seem to have been a major deterrent for existing home sales in the month with expectations that as interest rates increase in December, it is likely that December home sales will continue to decline.
NZD Official Cash Rate (20:00 GMT, 15:00 EST)
Consensus: 7.25%
Previous: 7.25%
Outlook: Tomorrow, Reserve Bank Governor Alan Bollard will likely hold interest rates at 7.25 percent. The central bankâ,"s hawkish stance has attempted to control inflation within the 1 percent and 3 percent target as consumer prices have risen to 3.2 percent in the past year. Meanwhile, encouraged by consumer spending, housing prices have escalated over 15 percent from 2004. Furthermore, New Zealandâ,"s 3.4 percent jobless rate, the lowest rate of the 27 economies using standardized rates, promotes consumer spending as more individuals find employment opportunities. However, the drawback of leaving interest rates at 7.25 is hindering consumer confidence in addition to the risk of New Zealand slipping into a stalling economy. Nonetheless, keeping the official cash rate at the highest of the other industrialized countries continues to appeal to foreign investors buying New Zealand securities, offering assistance in reducing its NZ$6.6 billion trade deficit.
Previous: During the last reserve bank meeting, Governor Bollard raised rates 25 basis points once again to 7.25 percent. Housing prices have surged justifying the increase in rates despite business confidence falling to a 5-year record low boosting prices at the consumer level. Notably, criticisms were expressed as the high interest rate may cause New Zealand to correct itself faster than its economy can handle. Nevertheless, having the interest rate set 1.75 percent more than its neighbor Australia has benefited the kiwi greatly. The high interest rate has kept the kiwi afloat while foreign investors capitalize on interest differentials investing in the New Zealand economy. There has been some speculation on whether interest rates have peaked, as the dichotomy between inflation and poor consumer confidence remains a conundrum for the Reserve Bank.
Japanese Merchandise Trade Balance (4Q) (23:50 GMT, 18:50 EST)
Consensus: ,¥950.0-Billion
Previous: ,¥600.6-Billion
Outlook: The Japanese Merchandise Trade Balance is expected to increase ,¥950.0-Billion in December, a substantial gain from the ,¥600.6-Billion recorded last month. The export-driven economy has been fueled by a weak currency, which fell nearly 5% against the greenback in the last three-months of 2005 and 13% for the entire year. Consequently, recent economic data out of Japan has been very positive for the manufacturing sector. Industrial production climbed 1.5% in November - a four-month high - while machinery orders surged 10.2%, handily beating expectations. The growth in exports has been helping to boost company profits, which in turn are resulting in increased capital spending, better job prospects, and higher wages. A growing trade surplus is indicative of both foreign and domestic demand, two underlying fundamentals that are helping to pull Japan out of a seven-year period of deflation. A bullish reading this month will only lend further support to the Bank of Japanâ,"s argument that economic growth is finally on the rise.
Previous: The Japanese trade balance showed a widening surplus for the first time in eight months, printing a ,¥600.6-Billion gain in November. Exports during the month climbed 14.7% to ,¥5.91-Trillion, which was the second highest amount ever recorded. Growth in exports has been rising unexpectedly, with many analysts attributing the success to a weakened currency. Furthermore, imports advanced by 16.6% to ,¥5.31-Trillion, an indication that Japanese consumers and producers are continuing to spend. So long as the Yen remains relatively weak, Japanese exports will continue to thrive, resulting in demand for workers and increased wage earnings. Should this scenario pan out, these factors may eventually lead to a period of rising inflation - which is exactly what the Bank of Japan is looking for.
Richard Lee is a Currency Strategist at FXCM.
Free Festival of Traders Videos
