Ahead Of Friday's Open

Market Movers
US housing starts and building permits should give us a better idea of a possible bad weather impact in December as suggested by the disappointing labour market report for December. Particularly housing starts should be sensitive to bad weather. As they were extraordinarily strong in November, a decline in December appears unavoidable.

US industrial production is expected to have shown another reasonable gain in December on the back of strong gains in November. Hence, the hard manufacturing data now appear to be catching up with the strong manufacturing surveys.

University of Michigan consumer confidence is also expected to have continued to edge higher in January.

In the UK retail sales for December will be released. Sales have slowed down recently after a very strong boost until autumn last year. Consensus is for a moderate rise in December.

Richmond Fed president Jeffrey Lacker (non-voter, hawkish) is scheduled to speak at 18:30 CET. Furthermore, Q4 earnings with among others Morgan Stanley and General Electric reporting today.

Selected market news
Stock markets retreated somewhat yesterday after disappointing earnings results from Best Buy Co., Citigroup Inc. and Goldman Sachs. On the economic front the news was broadly neutral as the Philadelphia Fed survey surprised slightly to the upside, whereas the US NAHB housing index fell back slightly in January, possibly as a result of the bad weather. US bond yields slipped further on the back of soft housing data and inflation, which came out as expected by consensus. It came as a slight relief as the tobacco-driven upside surprise to PPI was not repeated in the CPI-report. The bond market is likely short following the Fed’s decision to taper making it vulnerable to a correction lower.

Yesterday Fed chairman Bernanke defended the Fed’s quantitative easing (QE) in a speech that did not provide any new information regarding the Fed outlook – see Bloomberg. Bernanke sees little risk to inflation and said the Fed has the tools necessary to avoid inflation if needed. The only credible risk he saw from QE was to financial stability but he stated that ‘we don’t think that financial stability concerns should at this point detract from the need for monetary policy accommodation’.

The Japanese government today raised its economic outlook on the back of strong data – see Reuters.

In the euro area we saw yet more signs of stronger consumption yesterday as car sales jumped higher in December and Carrefour reported growth in sales in Spain for the first time since the financial crisis started.

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