| Market Analysis Forex - 19 12 2011 |
 The prospect of a quick resolution to the Eurozone sovereign debt crisis looks remote at this stage and the Christmas holiday period further diminishes the chances of imminent action. It also means the data calendar is starting to ease off, with mainly second-tier releases, aside from the German Ifo index, due this week. Indeed, this week’s European data releases should give a first indication of the confidence impact from the last summit. A slight weakening of the Ifo and a Christmas-driven improvement of consumer confidence should signal that the German economy can defy recent gloom-and-doom worries. The German economy has entered a ‘soft patch’, but it does not feel recessionary at present, unlike other parts of the Eurozone.The US housing market has been bumping along the bottom for quite some time now, but recently some data are showing slight improvements. It remains to be seen whether this is just a blip or whether a cautious upward trend is forming – a trend, to be clear, that is only visible through a magnifying glass for now. Construction of multi-family homes seems to be picking up, as there is increasing demand in the rental sector. This should help push November housing starts slightly higher. November existing home sales, on the other hand, are a black box this month. Data revisions over the past 3 years will be released, and sales will be downwardly revised, possibly by as much as 10-15%. Month-on-month rates should be little affected though, and we expect November existing home sales to improve slightly on the month. Aside from housing data, personal income and spending data and consumer confidence numbers will give us a better handle on the contribution to Q4 GDP growth from household consumption. In the UK, December’s MPC minutes are likely to show a unanimous decision to maintain the Bank Rate at 0.5% and the Asset Purchase Facility at £275bn. The BoE has already suggested that it is struggling to buy the Gilts it has said it wants to buy, given risk aversion and safe-haven buying by other investors, so we may hear discussions about the purchase of alternative assets in the future. Data-wise, confidence and spending numbers will highlight downside risks to household consumption and show that the weak growth environment is damaging government finances. Meanwhile, in Sweden, there is a growing probability of a Riksbank rate cut following the ‘surprise’ 50 bps move by Norges Bank. In Turkey, we don’t expect any change to monetary policy on Thursday. At the latest investors’ meeting, CBT governor Mr. Basci pointed out that price stability was the main concern for the CBT. In the Czech Republic, facing a deteriorating economic outlook, someone else at the CNB could support policymaker Tomsik, who voted for a cut. On the other hand, some other policymakers, including Governor Singer, stressed recently their worries about inflationary risk stemming from possible currency depreciation. In our opinion, the CNB board is not looking for further currency depreciation, which would very likely happen in the event of a rate cut. |
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