The minutes of the March 17-18 FOMC meeting, published last week, showed heightened concern about near-term downside risks to the outlook for activity led members to vote unanimously for an additional $1.1 trillion worth of measures to support credit markets, including the purchase of up to $300bn of longer-term treasuries over the next six months. We expect data this week to suggest that the threat may have since eased slightly. We forecast US retail sales rose by 0.5% in March, after a modest 0.1% fall in February. However, with rising unemployment and falling house prices, the main driver is likely to have been aggressive discounting as retailers shed their excess inventory. We forecast business inventories fell by a further 1.1% in February, the sixth consecutive decline. US trade data last week showed a surprise rise in exports in February, which should help to cushion the current downturn in manufacturing activity. We forecast industrial production fell by 1.0% in March, the least in five months, and a modest improvement in the April Empire and Philadelphia manufacturing surveys. However, we forecast both housing starts and building permits declined in March, while weekly jobless claims remained above 600,000, indicating that underlying economic conditions remain very fragile and any sustainable recovery in overall activity is still some way off. We also expect data this week to show the first annual decline in US consumer prices since 1955 in March, with the 'core' rate easing slightly to 1.7%, from 1.8% in February. After surprise net sales of $43bn in January, we forecast net foreign purchases of US long-term securities rebounded to $25bn in February.
It is a quiet week for data and events in the UK. We expect the headline RICS house price index to show a small rise in March, to -77% from -78.3%. The DCLG (official) house prices index is also expected to show an improvement, with an annual fall of 11.1% in February, up from 11.5% in January, although primarily reflecting favourable base effects. The BRC retail sales monitor, published overnight on Thursday, will provide an early indication of how retailers fared in March. There will also be keen interest in the outcomes of the two DMO bond auctions and the BoE reverse auctions this week.
Data from the euro zone this week are likely to raise pressure on the ECB to loosen monetary policy further. On Thursday, we expect confirmation that annual EU-16 CPI inflation slowed to a record 0.6% in March, from 1.2% in February. EU-16 industrial output is forecast to show a sixth consecutive fall in February, although at a slower pace than in recent months based on the results from individual countries.
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