06/02/06
last week’s recap
The Dollar ended the week stronger against the major currencies. The key event during the week was Dr Greenspan’s final FOMC meeting where the Fed hiked the fed funds rate by 25 basis points to 4.50%, as had been widely expected by the market. The accompanying statement suggested to markets that policy is now balanced, and that “some further policy firming may be needed” if resource utilisation and energy prices push up inflation. This confirmed that further rate hikes will be data dependant. The Dollar strengthened later in the week as US non-farm payrolls suggested a tightening of the labour market and increased the likelihood of a March rate hike. The Euro trader lower last week as traders remained focused on the Federal Reserve statement which left the door open for further interest rate hikes. The European Central Bank left its policy rate unchanged at 2.25%, however there was nothing contained in Trichet’s press conference to alter analyst’s view that the ECB will deliver a rate hike at its March meeting. The Japanese yen weakened against the dollar during the week. Bank of Japan Deputy Governor Toshiro Muto said the chances of an end to the central bank’s ultra-loose monetary policy will increase over the course of the fiscal year starting in April. His comment did little to help the yen as it continued to weaken against the dollar. The Sterling was also lower against the dollar last week. The Australian dollar was relatively steady against the dollar last week. Retail sales in Australia rose by a modest 0.4 percent in December, slightly below market forecasts and reinforcing the outlook for steady interest rates.
The week ahead
The coming week’s calendar is quite a light one. Industrial production data are expected to confirm the contrasting trends in European output – strong in Germany, but weaker in France and weaker still in the UK. In the US, the trade deficit is forecast to have widened again.
In the States as previously noted, there are few releases of any note out of the US in the coming week. The only data of market moving potential is the trade balance (Friday). The market expectation for December is that the deficit could have widened once more. Exports are likely to have declined after the strong gains of the previous couple of months. We will provide our previews of these data releases in the daily summary.
In the Eurozone the most significant data in the coming week is expected out of the Eurozone, and in particular out of Germany. The two key readings on the state of the industrial sector there will come from new manufacturing orders (Monday) and industrial production (Tuesday). In France, the first (“first”) estimate of Q4 GDP will be released on Friday. In the UK the focus will also be on the industrial production report for December (Wednesday). The UK trade balance was worse than anticipated in November, and a marginal improvement is forecast for December (Thursday). The BoE’s MPC reassesses the stance of monetary policy in the UK (Thursday), although the feeling in the market is that nothing is forthcoming from this group for some time to come. We will provide our previews and reviews of these data releases in the daily summary.
In Japan the recent evidence has quite consistently supported an upbeat view about the economy. Private machinery orders (Friday) tend to be about the most erratic, and hence most unpredictable, of any major economic release. We will provide our previews and reviews of these data releases in the daily summary.
Key Weekly Pivot levels