Weekly Briefing 10th - 14th December 2007

All times GMT

Monday Dec10th:

UK - 00:01 - Rightmove House Price Index M/M.
GE - 07:00 - Trade Balance.
GE - 07:00 - Current Account.
FR - 07:45 - Industrial Production M/M.
UK - 09:30 - PPI Input & PPI Output M/M.
US - 15:00 - Pending Home Sales M/M.
UK - 15:30 - Leading Index M/M.

Tuesday Dec 11th:

UK - 09:30 - Trade Balance.
GE - 10:00 - ZEW Economic Sentiment.
EU - 10:00 - ZEW Economic Sentiment.
US - 15:00 - Wholesale Inventories M/M.
US - 19:15 - Interest Rate Statement & Discount Rate Decision.

Wednesday Dec 12th:

UK - 09:30 - Average Earnings Index +Bonus Q/Y.
UK - 09:30 - Claimant Count Change.
UK - 09:30 - Unemployment Rate.
EU - 10:00 - Industrial Production M/M.
US - 13:30 - Trade Balance.
US - 13:30 - Import Price Index M/M.
US - 15:30 - Crude Oil Inventories

Thursday Dec 13th:

UK - 00:01 - RICS House Price Balance.
FR - 07:45 - Nonfarm Employment M/M.
FR - 07:45 - CPI M/M.
EU - 09:00 - ECB Monthly Bulletin.
UK - 11:00 - CBI Industrial Trends Orders.
US - 13:30 - Retail Sales & Core Retails Sales M/M.
US - 13:30 - PPI & Core PPI M/M.
US - 13:30 - Unemployment Claims.
US - 15:00 - Business Inventories M/M.

Friday Dec 14th:

GE - 07:00 - CPI M/M.
EU - 10:00 - CPI M/M.
US - 13:30 - CPI & Core CPI M/M.
US - 14:15 - Industrial Production M/M.
US - 14:15 - Capacity Utilization Rate

EU - Europe wide
FR - France
UK - United Kingdom
US - United States
GE - Germany

The week ahead.

Housing news and interest rate decisions dominated headlines and market sentiment yet again last week. Its easy to forget that there were times when this wasnt the case.

Fear had free rein in the final quarter of 2007, as concerns over an all out collapse in the housing market, banking sector, and consumer spending drove the market lower. As the final month of the year approached, sentiment has changed quickly in lock step, with forward expectations for US interest rates.

Fed Futures markets are indicating that a quarter point cut is highly likely at this weeks FOMC meeting, but it is the chance of a half point cut that has got the market excited.

Last week, the UKs MPC cut rates by a quarter of a percent, halting an 18-month firming cycle. Many economists didnt predict the move, though there was a remarkably rapid change in sentiment in the days leading up to the announcement. Sterling traders certainly knew something was afoot, with the US Dollar/GBP exchange rate dropping 1.5% at one stage, the day before the cut was announced.

The FTSE rose rapidly going into the decision, but fell back sharply on the actual news. It seemed a classic case of buying the rumour, and selling the news. The cut will be welcome news for borrowers, as the housing market in the UK continues to show signs that it will go the same way as the US.

Sentiment is also becoming more positive for the banking sector, as banks produce better than expected results, and smaller than expected credit related write downs. Britains Royal Bank of Scotland announced that the amount it would be writing down is roughly half the amount analysts had estimated. In addition they said that 2007 profits should still be well ahead of expectations.

Seasonality may be playing its part with December being a good month traditionally. According to The Stock Traders Almanac, since 1950 when the Dow was down in November, it gains an average of 4.9% over the next two months. In fact, only twice has the December-January period been down following a negative November; in 1967 and 1969. December and January are seasonably very positive months in their own right, with the S&P 500 up 75% and 65% of the time respectively.

For data release, this week is as heavy as they come, with the aforementioned US interest rate statement on Tuesday. A quarter point cut is most likely, but with a 20% chance of a half point cut, the reaction could be volatile to say the least.

In addition to announcing the next level of interest rates, the Fed will also be releasing their decision on the discount rate. This is the interest rate that banks can borrow from the FOMC. Many analysts are expecting this to be cut by twice as much as the headline interest rate, which would be good news for US banks.

This week there is also US pending home sales on Monday, trade balance on Wednesday, Core retail sales on Thursday, and Core CPI on Friday. With a top tier US economic announcement every day this week, its unlikely to be quiet on the US markets.

An up or down trade is a volatility trade that returns profits if either of two points are breached. An up or down trade on the S&P 500 over 10 days with the two triggers set as 1460 and 1545 returns 9%.