This week’s most important economic events will come from the US in the shape of the FOMC Interest Rate Statement, Existing Home Sales, New Home Sales and Gross Domestic Product.

With the Federal Open Market Committee already committed to a Federal Funds Rate of 0.00-0.25% there is basically no room for manoeuvre on the downside. However, the Fed could surprise the market and reduce the range closer to the BOJs 0.10 percent Overnight Call Rate.

With the Fed having used almost all of its ‘interest rate cut toolkit’ to stimulate the US economy there may be a change of focus to the outright purchase of long-term Treasury securities. This would attempt to bring interest rates lower across the yield curve, reducing the cost of a mortgage, in an effort to stimulate the housing market. However, with uncertainty in the jobs market and weak consumer confidence there may be continued weakness in housing for some time to come.

This Week
The first high volatility event of the week will be US Existing Home Sales, due for release at 15:00 on Monday. Data for December 09 is likely to show that the annualized sales pace of Existing Homes fell to 4.40M from 4.49M in November.

Tuesday will begin with Australian PPI at 00:30. Wholesale inflation for the fourth quarter of 2009 is expected to slow to 0.4% from 2.0% in Q3.

German Ifo Business Climate is scheduled for release at 09:00. The German economy is seen as a leading indicator for  Eurozone economic health  as a whole so the index will be closely watched. The index is expected to decline slightly from 82.6 to 81.0 for the month of January.

High volatility is also due from the UK at 11:00 on Monday. The Confederation of British Industry (CBI) Realised Sales indicator is expected to improve slightly to -53 from the previous -55.

At 15:00 the Conference Board’s US Consumer Confidence reading is due. As a precursor for consumer spending and overall economic health, this consumer confidence reading will be closely watched. The index is expected to improve slightly to 38.0 from the 38.7 seen for the month of December.

On Wednesday anticipation will be building for the FOMC Interest Rate Statement however, prior to this event Australian CPI will be released at 00:30 in the overnight session. Expectations are for a first quarterly fall in CPI to -0.4% after the 1.2% seen in Q3 of 2009.

At 19:15 we will see the highly anticipated Federal Funds Rate announcement with no change expected. The accompanying FOMC Interest Rate Statement is expected to create high volatility with comments on further “support for the functioning of financial markets” to be closely scrutinized.

The Fed isn’t the only central bank due to release monetary policy decisions on Wednesday with the RBNZ Interest Rate Statement also due. The Official Cash rate is likely to be cut to 4.00% from the 5.00% seen previously with economic growth in New Zealand under threat.

New Zealand will also announce Trade Balance data for December with the deficit expected to fall to NZD 100M from the 520M seen in November.

Thursday is set to be typically busy with the Nationwide House Price Index (HPI) due at 07:00. Expectations are for a 1.8% fall in house prices for January, following on from December’s 2.5 percent decrease.

There are several high volatility events due in the US session with Core Durable Goods Orders and Initial Jobless Claims both expected at 13:30. Core Durable Goods Orders probably fell by 2.6% in December following on from a revised 0.6% increase in November. Initial Jobless Claims came extremely close to the 600K mark last week (589K) with that number expected to fall slightly to 580K this week.

In the evening session New Zealand Building Consents will be released at 21:45 GMT. Consents increased by 4.3% in November of 08 after a fall of 19.7% the month previous.

The very last piece of key economic data from the US will be released at 13:30 on Friday. Gross Domestic Product (GDP) is expected to show a 5.4% decline in economic growth for Q4 2008. This is after a 0.5% decline in the third quarter.

Canadian monthly GDP will be released at the same time with a fall of 0.5% expected for November 08 after the -0.1 percent seen in October.

Please check our Economic Calendar for updates and actual releases as the week progresses.

The Bank of England’s Monetary Policy Committee voted unanimously to cut rates by one and a half percent in November, the BOE MPC Meeting Minutes revealed today.

The 9-stong committee also considered a larger 2.00% cut thanks to a deteriorating economic outlook and the prospect of falling inflation. The Bank’s Inflation Report revealed that inflation would likely fall to “well below” its 2.0% target in 2009 and the Committee would have been privy to this information prior to its release.

However, the prospect of a 2.00% cut was rejected in favour of a more measured approach to the easing of monetary policy. The MPC believes that consumer confidence will be supported if the bank eases rates gradually as and when more signs of economic weakness become apparent. The Bank also believed that drastic cuts could weaken the GBP to a level that might create upward inflationary pressure.

The decision to measure interest rate cuts was key as the MPC wanted the opportunity to explain its position in the November Inflation Report. It seems that the Bank is well aware of the importance of keeping the British consumer informed. If the UK economy is to recover, or at least minimise recession, consumer confidence and spending will be key.

Without a shadow of a doubt next week’s major news story will be the election of the 44th President of the United States. Who will it be, McCain, Obama? We will have to wait until late Tuesday or the early hours of Wednesday to find out but the US Presidential Election is bound to dominate news wires this week.

So how will financial markets react? Generally speaking, domestic markets attempt an optimistic rally when new leaders are elected. Of course this relies on the premise that policies and conditions facilitating economic growth were bad/ worse under the previous management.

Taking this into account, are we seeing some “buy on rumour” type trading in the US stock market? Last week the S&P 500 and the DOW both had their largest rallies since 1974, up by more than 10%. There seems little doubt that the financial rescue plan is playing a huge part in this relief rally but the market also seems to be responding favourably to Obama’s 7-point lead in the polls.

Last Week
If traders were paying strict attention to last week’s economic releases they may have been forgiven for thinking a stock market rally lacked fundamental justification. This is because 4 out of the 5 high volatility economic indicators released last week pointed to economic slowdown. Consumer Confidence, Core Durable Goods Orders and GDP data all pointed towards contraction while the Federal Funds Rate was slashed by a further 0.50% to 1.00%. Only New Home Sales managed to post MoM growth. Worryingly however, median prices fell to a new four-year low.

This Week
This week’s first high volatility event will arrive on Sunday at 21:45 with New Zealand’s Labour Cost Index. On a quarterly basis the index is expect to increase by 0.8%, in line with that of the previous quarter.

In the early hours of Monday morning we will see Australian Retail Sales Trend. Monthly growth of 0.2% is expected after September’s 0.3% rise.

The rest of the day will be dominated by manufacturing data. The UK’s Manufacturing PMI is due at 09:30 with economists expecting a reading of 40.0. Anything below 50 represents industry contraction so Sterling traders will welcome surprises to the upside.

At 15:00 the US ISM Manufacturing PMI is due to be released. September’s reading was 43.5 and the contraction is expected to deepen in October with a 41.6 consensus estimate.

At 16:00 in the UK we will hear testimony from BOE Governor King, Chancellor of the Exchequer Darling and FSA Chairman Turner on the recent banking crisis. The trio are due to testify before Parliament’s Treasury Committee, in London.

Aside from the US Presidential Election, Tuesday will be fairly quiet on the economic front. In the early hours of the morning we are due to see further tightening of global interest rates as the RBA’s Interest Rate Statement is expected to reveal a further half point cut to 5.50%. This represents a fall of 1.75% since August this year.

Wednesday will be a much busier day beginning early with Australian Building Approvals and Trade Balance. Following on from a 3.7% MoM contraction in the number of permit approvals in September, October’s rate is also expected to fall, by 1.1%. Trade Balance will likely fall to 0.50B AUD from 1.36B previously.

At 09:30 the UK’s manufacturing Industry will come under further scrutiny courtesy of Manufacturing Production which is expected to fall by 0.4% MoM. At the same time Services PMI is expected to reflect further contraction, dropping from 46.0 to 44.5.

As a precursor to official data from the Bureau of Labor Statistics later in the week, ADP’s Non-Farm Employment Change will be closely watched at 13:15. Economists are expecting a reading of -100K in the number of employed people in October.

At 15:00 the ISM Non-Manufacturing PMI is expected to worsen from minor expansion in September to 47.3, a reading that would indicate contraction in October.

New Zealand employment data comes to the fore on Wednesday evening at 21:45. Employment Change and Unemployment Rate are both due to be released. Employment Change is expected to show 0.8% fewer people were in employment over the previous quarter. This data contributes to the expected sharp increase in the Unemployment Rate to 4.3% from 3.9%.

Hot on the heels of similar data from New Zealand, Australia will report Employment Change and Unemployment Rate at 00:30 on Thursday morning. It is expected that the Aussie economy shed 10K jobs in October with Unemployment duly up to 4.4% from 4.3% in September.

The BOE Interest Rate Statement is due at 12:00 with the MPC expected to cut the Official Bank Rate to 4.00% from 4.50%. The Global interest rate focus will remain intact at 12:45 with the ECB Minimum Bid Rate Announcement. The ECB is also expected to cut by half a point, down to 3.25% from 3.75%. Traders will be very interested in the ECB Press Conference at 13:30 for an insight into ECB sentiment and the possibilities of further rate cuts.

Also due at 13:30 is Canadian Building Permits data. September saw a huge 13.5% fall in the number of permits issued with another 1.3% fall expected in October. Also from Canada at 15:00 is they Ivey PMI. This indicator attempts to reflect the health of the economy as a whole and expansion is expected to slow to 56.0 from 61.0 previous.

Friday’s focus will be on data from North America with Canadian Employment Change and Unemployment Rate getting things started at 12:00. The Canadian economy impressively added 106.9K jobs in September with 10K less jobs expected for October. Unemployment Rate is expected to worsen slightly, up to 4.2% from 4.1%.

At 13:30 we will see one of the most highly anticipated releases in the economic calendar. Non-Farm Employment Change from the US is expected to show 200K fewer employed people in October after 159K less in September. Unemployment rate, due at the same time, is expected to worsen from 6.1% to 6.3%.

There will barely be time for the dust from Non-Farm Payrolls to settle before Pending Home Sales are released at 15:00. With September’s MoM increase of 7.4%, sales in October likely fell by 3.4%.

This week will be rounded off by the New Zealand Parliamentary Election on Saturday. Although the impact on global markets will be limited there should be some effect on the New Zealand Dollar early next week.

Traders go into this week with the $700 billion credit market bailout casting a shadow over the economic data schedule. However, this should be resolved early in the week as the US Treasury tries to push the deal through.

Interestingly, a look at interest rate futures tells us that there is currently an 80% chance that the Fed will cut rates by 0.25% in their October meeting. The dust from the credit bailout will hardly have time to settle before traders start looking at this week’s massively important data. But will the economic indicators support the need for a cut or serve to reduce it?

This Week
The first high volatility event of the week will come from New Zealand on Sunday evening at 22:45. The New Zealand Trade Balance is expected to expand its deficit from 781 million Dollars to 912 million.

Monday will be reasonably quiet on the data front with the Core PCE Price Index from the US worth a watch. However, this is classed as a medium volatility event. The only high volatility news scheduled for Monday will come from New Zealand once again. Building Consents are due at 22:45 and are coming off the back of a 4.7% MoM increase for the month of July.

Tuesday will be very busy beginning with Building Approvals and Retail Sales Trend at 02:30 from Australia. Building Approvals are expected to fall by 1.0% MoM following a 2.3% decline in June. The Retail Sales Trend number is set to post a 0.1% increase, inline with the previous month’s number.

At 03:00 New Zealand will follow with its third high volatility event of the week. The National Bank of New Zealand Business Confidence indicator is due. Last month’s reading was -20.5 and traders will be keen to see if a recovery has taken place.

Next up at 09:30 is UK Current Account. The data is expected to come in at -9.7billion GBP compared to -8.4billion previous.

Later in the day the economic focus will shift to the opposite side of the Atlantic with Canada and the US reporting. Canada will release their monthly Gross Domestic Product. Last month’s data posted a modest gain of 0.1% with 0.2% expected this time.

The first high volatility event of the week from the US will be the Conference Board’s Consumer Confidence. The index is expected to worsen slightly from 56.9 to 54.6.

Wednesday will be slightly quieter with 4 high volatility events scheduled compared to Tuesday’s 5. The US economic machine will really kick in but Japan’s Tankan Large Manufacturers Index is due first at 00:50. The index came in at 5 last time but it is expected to turn negative at -2 this time.

The UK’s Manufacturing PMI is due to be released at 09:30. Once again the index is likely to show industry contraction with a reading of 45.0 expected.

At 13:15 the first of the week’s important US employment data is set to be released. ADP Non-Farm Employment Change is expected to show 55K fewer jobs in September. This data will be very closely watched as it leads the official government figure by two days.

Later on at 15:00 the ISM Manufacturing PMI will be released. Last month the index was 0.1 below the expansion/ contraction threshold of 50.0 and it is expected that this number will deteriorate to 49.5 for September.

On Thursday at 02:30 the Australian Trade Balance is due. Last month it came in at -0.72B billion AUD. This deficit is expected to be reversed to a slight surplus of 0.26 billion.

This will be followed by the UK’s Nationwide House Price Index at 07:00. The data is expected to show a 1.6% decline for the month of September after a 1.9% fall in August.

One of the main events of the week will be the ECB Interest Rate Announcement and the accompanying ECB Press Conference. The rate announcement is considered a medium volatility event with no change expected. However there is more of a risk to the downside and a rate cut may not be completely unexpected. The Eurozone Minimum Bid Rate currently stands at 4.25%.

The ECB Press Conference is regarded as a high volatility event as traders watch closely for Trichet’s explanation of the rate decision. The language used in the press conference is scrutinized very closely for clues to future rate moves.

Ahead of the Non-Farm Employment Change data due on Friday, Initial Jobless Claims will be closely watched. Last week’s new claims exploded to 493K with the number expected to fall slightly to 475K this week.

Friday will be dominated by news from the US but prior to this UK Services PMI is expected to create high volatility. The service sector is expected to show contraction in the month of September with a reading of 48.0 expected when compared to August’s 49.2.

At 13:30 US employment data will take centre stage. Non-Farm Employment Change is likely to show 100k fewer jobs compared to -84k in August. After increasing from 5.5% 3 months ago, US Unemployment Rate is likely to remain firm at 6.1%.

At 15:00 the final high volatility event of the week is due. This time it showcases the US non-manufacturing sector. ISM Non-Manufacturing PMI is expected to fall to the expansion/ contraction zone for the month of September, deteriorating from 50.6 the month before.

For full updates please see this week's economic calendar.