NEWS / Foreign Exchange

US housing data and eurozone confidence surveys feature this week

Financial markets will this week focus on key US housing data and eurozone surveys that may be indicative of the current pace of economic growth, see charts below. This data may help answer critical questions such as is the US housing market bottoming out and is the strong euro affecting the region's growth. There is a growing market view that the Fed will cut rates at the 30/31st October FOMC meeting, and although this is possible, our current view is that the economy is resilient outside housing, with strong earnings and employment growth, so rates may remain at 4.75%. Our view is that the worst of the US economic slowdown occurred in Q1 and growth in Q3 could be as much as 3% on an annualised basis. Although Q4 growth could be weaker, gdp growth will accelerate again from next year. Commodity prices will also command attention this week given that the New York futures oil price rose above $90 a barrel and gold $770 a troy ounce last week

• The UK released a set of strong economic numbers last week, including 6.3% p.a. growth in September retail sales and a 3.3% p.a. rise in Q3 gdp. This strengthens our view that there is no case for cutting official interest rates until next year, when there will be clearer signs of economic slowdown. The only UK data release is on Tuesday, the October CBI monthly industrial trends survey, which is expected to come in at +4 compared with +6 in September.

• Housing data will again dominate the US economic agenda. Housing starts figures published last week showed a decline of 10.2% in home construction, to a 14-year low in September. On Wednesday, data could show existing home sales falling to 5.35m in September from 5.5m in August, the lowest level in 5 years. On Thursday, September's new home sales are also expected to weaken to 0.78m compared with 0.79m, the lowest level in almost 10 years. Also on Thursday, initial claims data may show a decline from last week's surprise increase and durable goods orders could rebound by 1.3%, although the value of this data is limited by the fact that it is a very volatile number. On Friday, October final University of Michigan consumer confidence could be slightly higher at 82.4 compared with a preliminary number of 82.0.

• Survey data from the eurozone may offer clues to the pace of economic growth and add to the debate about whether or not the strong euro is affecting export performance. Higher short term funding costs and record oil prices may also weigh on optimism. On Wednesday, the flash October PMI for manufacturing could strengthen a touch from 53.2 to 53.4, indicative of growth in this sector. The flash services PMI could also rise a touch from 54.2 to 54.6. The PMI surveys' details on employment, prices and business expectations, will be scoured for signs of weaker growth and/or inflation pressures. The German IFO survey for October is due on Thursday and a small rise from 104.2 to 104.5 is forecast for the month. There may be little easing up in EU-13 M3 growth in September, 11.4% growth is forecast, but preliminary German October CPI may rise 0.2% on the month to remain at 2.4% on the year, published Friday, indicating that euro-wide inflation may be reasonably stable for now.

New Zealand's interest rates are forecast to stay at 8.25% on Wednesday. Also this week, Japan's September CPI will show continued deflation, while preliminary industrial output may have fallen 1.1% p.a. in September compared with 4.4% growth in August. Canadian retail sales are expected to have rebound strongly in August.