• UK RICS House Price Balance
• US Producer Price Index
• US Housing Starts

RICS House Price Balance (MAR) (23:30 GMT; 19:30 EST)
Consensus:  20%
Previous:     19%

Outlook:  The RICS house price balance is expected to rise to 20% from 17%, revealing that the difference between those reporting higher prices and those seeing lower prices continue to rise for the sixth consecutive month.  The rally in the housing market is being attributed to the interest rate cut in August by the Bank of England, the first reduction in lending rates since July of 2003.  Amid relatively high employment, rising wages, and low borrowing costs, housing demand is expected to continue to rise.  Analysts expect the speed at which prices rise to level off later this year, as the number of mortgage loans approved for home purchases, a strong indicator of future demand, have dropped.  The BoE predicts that consumer demand, government spending, and business investments will continue to stimulate economic expansion this year. Traders have abandoned their expectations of a rate cut this year, and have started placing bets on a rate hike, possibly by the end of the year.

Previous: In February, the RICS house price balance rose to a better than expected 17%, nearly doubling the 9% gap seen in January.  The survey further confirms recovery in the $6 trillion property market, which has been cited by the Bank of England to be a key-driving factor behind inflation this year.  While unemployment remains subdued at 5.1% and average earnings increasing 4.2%, retailers are gaining the confidence to reduce their discounts on items such as books and furniture.  This has led to the first rise in consumer prices in five months.  The BoE left interest rates unchanged at 4.50% for the eighth straight month at its last meeting, predicting price growth will continue for at least two years, near their 2% target.
 
US Producer Price Index  (MAR) (12:30 GMT; 08:30 EST)
                     (MoM)     (YoY)
Consensus:    0.4%       3.5%
Previous:       -1.4%       3.7%

Outlook: Analysts expect producer prices rebounded 0.4% last month as crude oil and gasoline advanced to record highs.  Despite this expected shift in the overall read, core price growth is anticipated to slow to 0.2% from 0.3% in February, as interest rates kept pace with, and helped curb, inflation.  The Federal Reserve believes that the pass-through of higher production costs to consumers has been relatively well contained.  Producers have been more brazen in passing on higher energy prices onto more consumers with seemingly unwavering confidence.  Crude oil prices rose 5% for the month, but business leaders were also confronted with a rise in the Conference Board's indicator of consumer optimism. Traders expect a 16th consecutive rate hike on May 10th, to 5.0%, by the central bank.  Economists believe that this may be the final rate change through the first half of 2007 as the Fed's rate outlook statement contained more details on slower growth this quarter.

Previous: In February, the producer price index dropped to -1.4%, the largest drop since April 2003, as energy and food costs dipped.  Energy prices, particularly gasoline and natural gas, fell 4.7%.  Meanwhile, food prices sank 2.7%, a level not seen since April 2002.  On the other hand, core prices rose to a higher than expected 0.3%, as demand for business equipment and raw materials accelerated.  US firms continued to face strong competition for factory goods from Japan, Europe, and China.  So far, companies have been slow to pass on these increased costs to consumers out of fear of losing market share to their similarly cheaper competitors.  Last month, the Federal Reserve raised interest rates to 4.75%, as the board felt inflation was still a near term concern.

US Housing Starts (MAR) (12:30 GMT; 08:30 EST)
Consensus:  2025K
Previous:  2120K

Outlook: Economists predict that construction of new single-family homes dropped to 2025K annualized, down 3.3% from February, as mortgage rates reached record highs.  Meanwhile, building permits, which is a strong forecaster of future construction, is expected to continue its descent, down to 2070K from 2179K the month prior.  This data may offer further confirmation to speculation of a slowdown in the housing industry, which represents 5% of the overall value of the economy and which has been a key contributor to consumer confidence in the past few years.  With inflation near the upper end of the Federal Reserve's target, traders anticipate the central bank will raise interest rates to 5.0% in May.  With the monetary policy body continuing on its hawkish interest rate regime, mortgages will become ever more expensive. However, this may end if the Fed offsets its strict diet of rate hikes as it becomes more and more obvious that their tightening is cooling economic growth.

Previous: Housing starts fell 7.9% in February, down to 2120K from 2303K on an annualized basis, after reaching record high levels in January.  Builders cut back production forecasting the combination of higher mortgage rates and rising new home prices will deter customers, despite strong employment and rising wages.  The decline in housing starts is expected to reduce the ability of consumers to raise new equity, which would be pumped right back into the economy.  Using the housing industry as an example, members of the central bank have begun to express their concern of the downside risks associated with raising interest rates.  The Federal Reserve cautiously raised borrowing costs to 4.75% to curb inflation at its March 28th meeting.

Richard Lee is a Currency Strategist at FXCM.