German GfK Consumer Confidence (FEB) (07:10 GMT; 02:10 EDT)
Consensus: 8.4
Previous: 8.7

Outlook: German consumer confidence may dip for the third consecutive month, as the effects of a VAT tax increase begin to weigh on consumer prices. Despite strong domestic economic growth, the threat of higher taxes and proposed health insurance costs threatens to derail overall sentiment. Suffice to say, however, the impact of a single survey may be limited if the labor market continues to support lower unemployment and strong wages. Much like we saw in the most recent ZEW survey, pessimistic forecasts of future growth cannot last indefinitely. As consumers continue to see strong employment opportunities and gradually rising wages, the fear of higher taxes may be overtaken by an otherwise bullish outlook for Europe’s largest economy.

Previous: German GfK consumer confidence fell for the second consecutive sampling period, with the highly publicized tax increase weighing on sentiment. Of worthwhile note, Income expectations and Willingness to buy sub-indices both fell—with desire to buy falling to its lowest since August. This was consistent with previously weak retail sales figures, but income expectations came in stark contrast to a very bullish drop in unemployment through December. Moving forward, we expect the GfK Consumer Confidence index to rebound from multi-month lows.

German IFO (JAN) (09:00 GMT; 04:00 EDT)
(Business Climate) (Expectations)
Consensus: 109.0 103.0
Previous: 108.7 102.5

Outlook: The January reading of the German IFO survey of business climate is anticipated to rise to a record of 109.0 after oil prices dropped and the country’s benchmark equity index rallied to a six-year high. The decline in crude oil to near $50/bbl and signs that US economic growth has failed to let up helped reinforce the view that the German expansion will withstand Chancellor Angela Merkel's VAT hike to 19 percent from 16 percent. Boosting the chances of a position IFO reading, the ZEW survey of investor confidence rose to a six-month high of -3.6 in January and the unemployment level dropped 108,000 to bring the rate to 9.8 percent, the most since reunification. Overall, the German IFO survey should continue to assert that amongst investors and businesses remains resilient and buoy expectations of a European Central Bank rate hike by March.

Previous: The German IFO survey of business climate surged to a 15-year high of 108.7 during December, beating expectations of an unchanged reading at 106.8. Meanwhile, both the current assessment and expectations indices jumped to 115.3 and 102.5, respectively. Overall, the data pointed to extremely optimistic sentiment as German firms became highly profitable on export growth and felt more positive with oil prices remaining relatively steady. As a result, companies boosted hiring and investment, further fueling Euro-zone economic expansion. The most encouraging aspect is the expectations reading, however, as this figure had previously had a tendency to slip and helped keep European Central Bank members hawkish.

US Existing Home Sales (DEC) (15:00 GMT; 10:00 EDT)
(Sales) (MoM)
Consensus: 6.25M -0.5%
Previous: 6.28M 0.6%

Outlook: The first round of housing sales data is expected to resume its slide for its December reading. According to economists’ consensus, the National Association of Realtors’ existing home sales indicator is predicted to print a 0.5 percent drop in purchases to a 6.25 million annual pace. These expectations are firmly based on the housing market’s broader down trend. Through the end of 2006, housing construction dropped 13 percent, while the housing market as a whole was put on pace for its biggest contraction in 15 years. In the most recent data available though, there is some promise for December sales numbers. Looking to expand on the rebound in November’s sales numbers, last month brought with it a jump in construction activity and subsequent rebound in builder confidence. According to the Commerce Department, housing starts rose 4.5 percent in December. However, this unexpected surge could be partially attributed to the warmest December on record since 1957. On the other hand, a 5.5 percent jump in permits, the most in four years, suggests weather was not the only factor at play. What’s more, a strong rebound in the NAHB confidence raises the bar from the producer’s side. When all is said and done though, the odds are still stacked against a rebound in the housing market. Inventories are still hovering near record highs and benchmark interest rates have yet to back off. Until some of these bigger issues are resolved, the housing market will likely subsist as the biggest drain on economic growth in the US through 2007.

Previous: Sales of previously owned homes unexpectedly ignored predictions of an 0.8 percent contraction to instead print a 0.6 percent rise. At 6.28 million units sold on an annual basis, however, sales are still down 10.7 percent on the year. This statistic aside though, the sales number offers tangible evidence that the beleaguered housing market may have found its bottom. Following the first positive change in the previous period in eight months, October and November’s represent the first back to back growth in monthly figures since March of 2005. Working deeper into the data, single family homes (which account for a majority of the gauge) advanced a meager 0.2 percent. This compared to a sizable 3.1 percent increase in condo and co-op sales. Outside of the standard sales numbers, a few of the component reads from the indicator offered even greater reason for optimism. Inventories, which bloated to a record only a few months ago, contracted to 3.82 million units. Equally impressive, prices dropped 3.1 percent on an annual basis, for the fourth consecutive monthly contraction. Together, the drop in prices and inventories marks two areas where improvements could spell increase sales activity for the future.

National Consumer Price Index (YoY)(Dec)(23:30 GMT, 18:30 EST)
Consensus: 0.3%
Previous: 0.3%

Consumer Price Index ex Fresh Food
Consensus: 0.2%
Previous: 0.2%

Outlook: Consumer prices will likely have remained at 0.3 percent, if not dipping slightly lower, on the recent pullback in commodity prices. Crude oil, dropping from the $78.40 high last year, is a major contributor to the thin price increases in the economy purporting lower costs on both consumer and producer fronts. A reflection of this was the recent producer price report, which showed the slowest pace of growth in a year at a 2.5 percent annualized gain. Subsequently, the declines in the manufacturing sector are being combined with continually tepid consumption in the world’s largest economy with consumers unwilling at this point to spend domestically on anything but essentials. Sales figures in every sector, including supermarket and department stores, are remaining comparably flat, with no pickup expected in the coming quarter. As a result, the data will likely keep central bankers hawkish on inflation, but looking out for an increase in domestic spending before moving rates any higher.

Previous: Consumer prices rose in the month of November according to the Statistics office in Tokyo as commodity prices remained buoyed in the world’s second largest economy. However, the data was less than exemplary as there was insufficient confirmation for further inflationary suggestions in the near term. Domestic consumption continues to remain weak in light of an unemployment rate that fell to an eight year low of 4 percent as wage earnings are failing to rise. Although Japanese manufacturers are benefiting from the supported demand of exports, profits are not being funneled to the labor force. The notion leaves the consuming public to lower their spending as disposable income remains thin. Ultimately, although good for yen strength, the consumer price report will continue to feed the need for further economic confirmation before policy makers are able to truly assess the inflationary picture.

John Kicklighter is a Currency Strategist at FXCM.