Market looks to FOMC meeting for economic outlook (video)
Currencies Direct April 27th 2015 - 2 minute read
Today will be quiet in terms of economic data, with only the UK CBI business optimism index to digest. The uncertain outcome of the general election in two weeks’ time will likely supress the number somewhat this month, but the overall trend has improved since the start of the year.
UK GDP is the key data point tomorrow, with the consensus forecast of 2.8% on a yearly basis expected to show momentum continuing across the UK economy. Over the quarter the market expects growth of 0.5%, this number is drop compared to the Q4 2014 number of 0.6%. Sterling remains locked in tight ranges against both the US dollar and euro and we see no change to that this week.
US GDP estimate is released this week and is forecast around 1% on an annualized basis. The number is a significant drop off from last quarter’s 2.2% growth and, depending on who you speak to, the cause is either the strong dollar or bad weather, although realistically it has probably been the result of a combination of both. Both the bulls and bears can make a strong case here for the overall trend in the next three months but our own view expects the data flow to improve in Q2.
It will be important to keep a close eye on the FOMC meeting concluding Wednesday to see if it acknowledges weaker Q1 data and the Fed outlook because of it. Consumer confidence and ISM manufacturing data later in the week are both expected to continue to show softening economic activity, both falling slightly from last month.
German inflation data out on Wednesday should continue to rebound after briefly turning negative at the end of last year. The ECB QE programme seems to be having the desired effect most visibly via the exchange rate channel but also on raising inflation expectations and a higher rate of price increases in Germany compared to the southern European nations is crucial for internal rebalancing to continue. Speaking of which, Greek negotiations ahead of debt repayments at the end of May remain in deadlock. We heard nothing new from the Eurogroup meeting on Friday so we look ahead to a face to face meeting between Greek PM Tsipras and German Chancellor Merkel on Wednesday.