Japan BoJ Monetary Policy Meeting Minutes (5:00 GMT; 0:00 EST)
Outlook: Investors will look to the Bank of Japan’s minutes to confirm previous board member rhetoric on the shift away from quantitative easing. Last week, the BoJ announced an end to their five-year ultra loose monetary policy, with a vote of 7-1. As expected, the central bank decided to maintain their conventional zero interest rate policy, while gradually decreasing the current account deposit target balance over the next few months. If economic expansion sustains its current growth rate, members have voiced some flexibility in interest rates within a year or two. However, if deflationary pressures continue, the board will more than likely opt to leave rates near zero percent.
Previous: The January minutes of the December monetary policy meeting remained consistent with previous releases with the Bank of Japan continuing to flood the market with yen denominations in accordance with its quantitative easing policy. Members discussed the possibility of gradually reducing the currency liquidity and higher interest rates, but made no changes to their current policy as economic conditions had not warranted an aggressive decision. They agreed that the Japanese economy is recovering steadily, as domestic and foreign demand remain well balanced. The report affirmed that exports continued to increase, particularly to the United States and East Asia, and expected to maintain pace. Business investment and production remained at high levels, while the employment and income situation has risen moderately.
German ZEW Survey (Economic Sentiment) (MAR) (10:00 GMT; 5:00 EST)
Consensus: 71
Previous: 69.8
Outlook: The German ZEW survey is expected to have inched up to 71 this month as investor sentiment remains relatively high towards the Germany economy. Economists forecast that GDP growth picked up from the previous quarter, when it stalled, as consumers have continued spending and businesses have boosted production. Retail sales picked up to 2.7%, from the previous month’s -1.4%. Subsequently, factory orders accelerated 1.4%, up from -1.6%. and unemployment dropped to 8.8% from 9.1%. As industrial production remained strong at 3.3% year over year, slightly higher than the expected 3.2%, traders will be watching the reliable leading indicator closely, hoping to increase their positions in speculation of further rate increases from the European Central Bank lending to upside for the underlying spot.
Previous: In February, the German ZEW survey held near record highs at 69.8, a slight dip in sentiment from the two year high of 71 seen in January. The strong reading indicates that investors are optimistic on the economy. Business confidence has reached five year highs as companies increase investments to meet growing foreign demand. Meanwhile, consumer sentiment strengthened to an eight month high driven by excitement over the upcoming World Cup soccer tournament. The recent interest rate hike from 2.25% to 2.50% has supported the confidence economists have shown toward the expansion of the German economy.
US Current Account Balance (4Q) (13:30 GMT; 08:30 EST)
Consensus: -$218.0B
Previous: -$195.8B
Outlook: The broadest measure of US trade with the rest of the world is expected to have ballooned to a record deficit over the final three months of the 2005 as the deficit in the trade of goods breaches new highs. October was a particularly expensive month in trade with the deficit hitting a record $68.9 billion high on rising demand for foreign televisions, autos and oil. This figure was evidence that consumers bounced back quickly from the destruction caused by hurricane Katrina in September, with higher employment and wage supporting demand. As a consequence of the strong consumer demand, domestic businesses were also straining the import lines. Flush with revenue from previous quarters’ profits, US companies were expanding production by purchasing foreign machinery and resources. Resources were particularly dear over the final quarter with crude hovering around $60 per barrel - nearly double the price only a year before. Despite all of these issues, there exist a few aspects that could raise the deficit above expectations. Two important factors to consider in the final quarter of 2005 was foreign investment and the sudden contraction in consumer spending. Consumer spending which has nourished the growing goods trade indifference, plunged to 1.1 percent in the final three months of the year, nearly a quarter of the pace of the previous quarter. Furthermore, foreign investors increased their net holdings of US assets to a record $106.8 billion as equities and lending rates ride the strong wave of growth in the world’s largest economy.
Previous: A second consecutive contraction in the US’s current account balance in the third quarter was the result of the steady influx of foreign investment capital into the US as well as large donations and insurance payments from abroad in the wake of hurricane Katrina. While the quarterly figure was better than expected, it has not gone unnoticed that the $195.8 billion shortfall in trade of goods, transfer payments and income from investments is still at “unsustainable†levels. Contributing to the import driven side of the balance was the country’s continually deteriorating trade in goods’ performance. US wage growth and a steadily declining jobless rate continued to back consumer demand and has left optimism running in high gear. Fed Governor Greenspan expressed particular concern over the level of the shortfall - the trade deficit stood at 6.2 percent of GDP. Greenspan said the country’s ability to fund the trade deficit through foreign investment was not a long-term fix and would eventually end after hitting a practical limit. However, covering this growing burden has left many complacent. Foreign investors that have plowed record levels of capital into US assets over the years as they look to park their money into virtually riskless treasury products that were yielding more and more as policy officials stuck to a policy of tightening interest rates.
US Advanced Retail Sales (FEB) (13:30 GMT; 08:30 EST)
Consensus: -0.8%
Previous: 2.3%
Outlook: Sales at retail stores are expected to have fallen in February after the astounding jump in January as the sudden return of winter weather forebode the decline in consumers’ willingness to spend. The market’s expectation of a contraction in sales of 0.8 percent last month, the first in six months, is well founded given the response to the thermometer many retailers showed in the beginning month of the year. While many businesses looked to capitalize on the warmer temperatures in January by pushing products usually popular in spring, the backlash from colder weather provided a quick reminder of the season and kept many shoppers in their homes. Particularly drawing on the read in February will be domestic auto sales. According to industry data, dealers reported car sales slowed to 16.6 million for the month on an annual basis form 17.6 million in January. Paradoxically, the decline in sales occurred at the same time as unleaded gas declined. This decline in gasoline receipts will also be a detriment for retail sales, given sales at the pump are tallied into the total retail figure. Consumer spending accounts for nearly two-thirds of the economy and many believe the Fed is partially banking on a rebound in consumer spending to sustain its current tightening policy. Whereas a decline February sales is unlikely to be the breaking point for pushing the central bank off its hawkish path, it will be an additional factor for policy makers to consider when they are more wary of any piece of data that could indicate inflation will cool in the medium-term
Previous: Retailers in the world’s largest economy were pleasantly surprised in January as consumers took advantage of the mild temperatures by packing stores and boosting sales 2.3 percent from the previous month, the largest increase since May of 2004. Following on December’s anemic number, January’s figure has revitalized speculation that the rebound in consumer spending from 1.1 percent last quarter could be considerable. Sifting through the contributory data reveals a number of supportive elements for the period’s strong increase in purchases. First in line was a 2.9 percent surge in sales at auto dealers, which were spurred by gasoline prices that nearly half of that in September’s highs. However, even excluding sales at dealers, the overall retail number still came in at 2.2 percent. This core rise was accounted for across department, clothing and furniture stores owing to the general rise in consumer sentiment. Optimism amongst American shoppers rose to its highest level since June of 2002 over the same month on positive job number. Reclamation of gift cards, which are not accounted for in companies’ balance sheets until their redemption, were likely a further component for the rise.
Richard Lee is a Currency Strategist at FXCM.