This week’s highlight comes from the US

The highlight this week comes from the US, in terms of interest rate meeting and following press con

(26.04.2011) The highlight this week comes from the US, in terms of interest rate meeting and following press conference in the Federal Reserves. Also note that several Japanese key figures are issued this week, which hopefully will help give us a clearer assessment of the economic consequences of the country’s triple catastrophe.

By Anders Grøn Kjelsrud, Analyst at DNB Markets

First, a brief summary of some of the most important economic events since our last report before Easter. From Sweden the Riksbank raised its key policy rate from 1.50 to 1.75 per cent (the sixth straight rate hike), as widely expected. The interest rate path was left unchanged from the February meeting. The path thus indicates three more rate hikes of 25 basis points by the end of the year, which will bring the rate towards 2.50 per cent. The Swedish currency weakened somewhat versus the euro right after the policy announcement, and EURSEK has since remained fairly stable just below 8.9.

In contrast to the Swedish, the British central bank has not started their tightening circle yet, although some of the Committee members have voted for higher rates for a while already. If we were to believe the notes from the latest interest rate meeting (issued Wednesday), the Committee has not moved further towards a majority for a rate hike.

Finally, the German Ifo index (Thursday) fell from 101.1 to 100.4 in April – still at a level consistent with robust production growth.

In FX, the euro has strengthened somewhat versus the US dollar over the last week in thin trade, but has lost some of the gain in early trade today. The Japanese yen has also gained versus the dollar during the last week, as the Norwegian krone. EURNOK is currently traded just above 7.8. 

Regarding this week, the highlight will probably come from the US (as it often does), when the Federal Reserves (Fed) will announce its latest interest rate decision tomorrow evening. The key policy rate will be kept unchanged, close to zero – while also the QE2 program probably will remain as it is. Note that this in practice is the last chance to change the program before it expires in June. Even though the policy decisions here and now are not that exciting, the meeting will still be interesting. The Fed will namely, for the first time, hold a press conference after an interest rate decision.

In addition to the Fed meeting, several important US macro figures will be released during the week. Already later today the Conference Board issue their measure of the consumer confidence in April, while a first GDP estimate for Q1 is published on Thursday. According to Reuters, consensus expects an annualized q/q growth of 2.0 per cent, slightly lower than the actual 3.1 per cent in Q4 of last year.

The most important release from the euro area is likely to be the CPI figures on Friday, while we will get GDP figures from the UK tomorrow morning. Furthermore, Statistics Norway issues its quarterly business tendency survey Thursday, the same day as Norges Banks publish their lending survey for Q1. On Friday, figures for Norwegian registered unemployed are released, while we get Swedish unemployment figures already later today.

Several Japanese macro figures will also be released this week. It has now been over six week since the country was hit by the tragic triple catastrophe. Still, the economic consequences of the disaster remain unclear. Macro publications from the period after have so far mainly been of the “soft” kind, in terms of activity and sentiment indices, which in short have pointed in different directions. First now, the actual macro figures for March are due.

The first important figure will be that for retail sales, due for release tomorrow morning. According to Reuters, consensus expects a fall of over 5 per cent from February. Thursday is the big release day, however, including figures for CPI, unemployment and new orders. But the production figures (also on Thursday) are perhaps the most interesting of them all. Consensus is for a drop of 11 per cent from February, but the collected estimates vary widely. The most pessimistic respondents report an expected fall of 25 per cent m/m, while the more optimistic ones estimate -5 per cent m/m. The distance between the various estimates illustrate how little we really know about the economic impact of the disaster (we know that the human costs are extreme!). The uncertainty will of course remain, but this week’s macro releases will hopefully help give us a somewhat clearer picture. Furthermore, the Bank of Japan will hold another policy meeting this week, with announcement on Thursday.