Financial market attention will focus on the Fed's FOMC meeting and US Q1 GDP data on Wednesday, while still awaiting the outcome of the US bank stress testing exercise. In terms of the Fed's meeting, there seems little more that can be done to loosen monetary policy for now, as official interest rates are 0-0.25% and a scheme to buy up to $300bn of long-term treasuries and expand purchases of agency debt and mortgage backed securities is already underway. Instead, it is likely that the Fed will maintain a wait and see approach, closely monitoring the ongoing economic impact of monetary and fiscal policy measures introduced so far. However, there may be comment on the wider economy, including members' assessment of the slightly better Fed Beige Book report of economic conditions in the Federal Reserve Districts. We will be looking out for any evidence of a change relative to last month in the Fed's tone in relation to the pace of the downturn and the risk of deflation. Elsewhere, the BoE publishes its quarterly Asset Purchase Facility report on Monday, while the UK Budget 2009 implications for gilt markets and relative differences in US, UK and Europe Q1 GDP outcomes will continue to be debated intensely in financial markets. On Thursday, the Bank of Japan is likely to hold interest rates at 0.10% as the Japanese economy faces the deepest recession of the major economies this year.
The UK's Q1 GDP outcome of a 1.9% contraction, significantly worse than the market consensus forecast of 1.5%, means that market participants will remain keenly focused on lead indicators that may add insight to the Q2 result - whether it will be better or worse - and the timing of eventual recovery. A key question is, will Chancellor Darling be correct in predicting that the UK economy will be growing again by the end of this year or will incoming data be more suggestive of a situation of stabilisation - there may be no clear direction for now? This week, latest housing market-related data are published. Whereas the recent RICS survey showed new buyer enquires increasing for the fifth consecutive month in March and at the fastest pace since September 2003, its balance of actual completed sales has barely improved. What this could imply is that whereas there are cash buyers picking up discounted properties, mortgage-backed purchases remain weak, holding back the wider market. BoE mortgage approvals for March, published Friday, will provide evidence for this - they are likely to rise a little, but stay close to February's figure of 38,000. Also, the Nationwide publishes its house price index for April - the market consensus forecast is for a monthly fall of 1.2% to partially offset the rise of 0.9% in March. So on balance, with recession deepening in Q1 and growing worries about job security, it is fair to say that the outlook for the housing market remains far from rosy. Also this week, the BoE publishes March M4 growth (final), consumer credit and net mortgage lending figures. GfK consumer confidence and the CBI distributive trades' surveys are also due.
We expect US Q1 GDP to have contracted at an annual rate of 5%, slightly better than the 6.3% decline in Q4. Although the detailed composition of GDP is not published in this release, the monthly series is likely to show continued falls in personal income and spending in March. Consumer confidence remains very weak, as highlighted by the University of Michigan confidence survey. The US also publishes the core PCE deflator, the Fed's preferred inflation measure, which may have stayed at an annual rate of 1.8% in March. The ISM manufacturing survey for April may stabilise at 36, which is still indicative of falling production levels.
The eurozone economy has been at the forefront of concerns about the depth of recession - GDP could fall by as much as 4% in 2009. The business survey outcomes have been mixed, however, with the ZEW current economic conditions index falling to a low of 91.6 in April, but the economic sentiment index strengthening. In addition, the April PMI manufacturing and services index increased, but both remained well below 50, indicating contracting output. The eurozone unemployment rate for March is published this week and is expected to have risen for the twelfth consecutive month to 8.6% from 8.5% in February, which may further damp consumer confidence.
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