US Interest Rates and Global Markets: Key Takeaways from Forthcoming Economic Data

The world's attention is turned to the US economy this week, with the Federal Reserve chairman, Alan Greenspan, set to testify in Congress on Wednesday. The market is eagerly awaiting his assessment of the nation's economic recovery, following strong US March payrolls and inflation data. Market analysts expect the first interest rate rise to occur in the third quarter, with a 25 basis-point increase fully priced into bond prices. Meanwhile, the European economy is showing mixed signals, with the UK and Germany's economies expected to provide key indicators of recovery.

Key Takeaways:

• The Federal Reserve is likely to assert patience in monitoring economic developments, according to HSBC analysts, despite recent strong data.
• Most market observers expect the first interest rate rise to occur at the end of the third quarter, with a 25 basis-point increase in August fully priced into bond prices by ING Securities.
• The US Beige Book, released on Wednesday, will provide further insight into the strength of the US economic recovery.
• Economists forecast a 0.5 per cent gain in March industrial production numbers, while the UK's GDP growth rate is expected to slow to 0.2 per cent in the final quarter.
• The forward-looking German ZEW business confidence figures for April, out on Tuesday, are expected to show a small rise, boosted by stronger US data and a softer euro.
• UK interest rate watchers will scrutinize the minutes from April's Bank of England meeting, with economists expecting a close vote on interest rates.
• Analysts expect consumer price inflation to fall to 1.3 per cent in March, close to the 1 per cent rate that would require an explanatory letter to the finance minister.
• Producer price figures and retail sales figures, due out on Monday and Friday, will be closely watched by analysts.

Statistics:

• John May 1,237,510 (US ) economic forecast (Attributes not specified)
• HSBC 34 per cent expected balance of respondents reporting a rise in house prices
• ING Securities 25 basis-point rise in August fully priced into bond prices
• Eurozone 0.5 per cent gain in industrial production numbers
• UK GDP growth rate 0.2 per cent in the final quarter
• German ZEW business confidence index expected to show a small rise

Sources:

• Bundesbank
• Federal Reserve Chairman Alan Greenspan testimony to Congress on Wednesday
• The Economic Times
• Eurozone monetary policy committee's minutes from April's meeting on Wednesday
• Deutsche Bank, HSBC, Capital Economics reports mentioned in the article
• The Royal Institute of Chartered Surveyors housing survey on Tuesday