Europe Ahead: Another busy week awaits investors with central bank decisions

Investors have a date with another handful and hectic week with major data to be revealed following last week’s data from the manufacturing, services and labor sectors.

This week will mainly focus on Central Bank’s decisions where the ECB and the BoE will present the first rate decision in 2011, along with providing investors with the outlook of the region as more data clears the performance in the fourth-quarter of 2010.

Euro Zone Data

Starting with the euro-zone, the week will commence with data that holds little importance to markets, where the industrial production for November will be released, with expectations that the sector’s conditions slowed slightly.

Following that, the ECB will announce its rate decision on January 13, which the bank is highly predicted to preserve at the current low record of 1.00 percent.

Trade figures along with inflationary gauge will also be released later this week, with expectations that the rise in the value of the euro during November, failed to influence prices or have a severe effect on exports.

Inflation still checks with regulators’ limits, where the core CPI in December probably preserved its 1.1 percent rise for another month. Meanwhile, the trade balance will probably show a surplus of €1.7 billion on a seasonally adjusted basis, compared with the previous €3.6 billion surplus.

Debt woes remain the major issue in the euro-zone, where the third quarter growth figures that was presented Friday, expressed the scrutiny of government debt on growth as the final GDP for the 16-nation economy back then was revised lower to 0.3 percent, from the previous 0.4 percent advanced reading.

Unemployment remained at 10.1 percent in November with expectations that the labor sector will suffer more as governments continue on slashing spending and public jobs in the region.

The main driver for growth in the region remains Germany, where the Federal Statistics Office will release its 2010 GDP figures with expectations that the economy managed to expand more than 3.5 percent.

UK Data

U.K trade deficit on the other hand is expected to have continued to widen in the previous period, where the visible trade deficit is expected at 8.33 million pounds in November, while the non-EU trade balance will show a deficit of 4.8 million pounds.

The manufacturing and industrial production probably increased in November with the industrial production rising by 0.5% and the manufacturing production rising by 0.4%. On the year, the industrial production rose by 3.3% while the manufacturing production rose by 5.3%.

The highlight of the week in UK will arrive from the BoE, as it the MPC announce the rate decision, where the bank is expected to preserve rates at 0.50 percent, while keeping the APF purchases at £200.0 billion.

Further clues will be sought from the bank on the outlook of the economy, which will provide a clearer picture for investors on what to expect throughout 2011.

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Inflation accelerated last month in Europe

Busy day for investors, where inflation reports from major economies were released, showing that prices accelerated in the month of December amid debt woes that continues to influence traders and investors.

German Inflation Accelerates the most in two years

German Federal Statistics Office report for Consumer Price Index showed that prices surged to the fastest pace in more than two years last month, driven by the rise in commodity prices.

Inflation in Germany, measured by the harmonized European method, rose by 1.9 percent, which comes in line with market expectations and the previous reading. On a month-on-month basis, the index rose by 1.2%, meanwhile the monthly CPI index rose by 1.0 percent, while the yearly CPI index rose by 1.7%. All figures matched the previous and the expected by markets.

The German economy has been driving the recovery process in the region, where companies stepped up hiring, bringing unemployment to the lowest level in almost 20-years.

The Statistics office noted on December 29 that 2010 inflation levels was “driven by price rises in light heating oil and fuels, as well as in fruit and vegetables.”

UK producer Prices

UK Producer Prices unexpectedly rose more than market’s median estimates last month, reaching 0.5 percent, from November’s figures of 0.4 percent; the Office of National Statistics said today, due to the rising cost of food and energy prices where food prices jumped the most in more than two years.

The report puts more pressure on the BoE to contain inflation in the country, where the bank preserved its monetary stance for the 22-consecutive month, keeping rates at 0.50 percent and APF purchases at 200.0 billion pounds.

The Center for Economic and Business Research (CEBR) said today the British economy faces 20.0% chance of falling back into recession, on rising unemployment and accelerating inflation levels that continue to affect the ability of the economy to recover.

Britain’s economy will grow by 1.1 percent in 2011, according to CEBR, down from the previous estimates of 1.3 percent that was projected in October. CEBR economist Scott Corfe said that the reason for the revision is “persistently weak labor-market indicators and large rises in consumer prices,” where he added that “It is difficult to see where significant growth will come from given that domestic demand is likely to be weak.”

CEBR also projects that the BOE will expand its APF purchases, depending on the drop of inflation that currently stands at 3.3 percent, which is higher than the government’s upper limit of 3.0 percent.

CEBR estimates for 2010 growth levels are set at 1.8 percent, while the economy to expand in 2012 by 1.5, as for inflation, the group projects that inflation would spike at 4.0 percent this year, before dropping to 1.6 percent by the second half of 2012.

Euro Zone Inflation levels

Trichet noted yesterday during the press conference that was held after the rate decision that inflation outlook has tilted to the upside over the short-term, while remaining relatively anchored over the medium-term.

The Core CPI index in the euro-zone showed that prices rose by 1.1 in the month of December, in line with the previous and the expected. Meanwhile, the CPI index rose by 0.6% over the monthly basis as expected, from November, where it rose by 0.1%. on the yearly scale the index rose by 2.2%, this is compared with the previous revised 1.9 percent.

The report place huge pressure on the ECB; where Trichet noted yesterday that the bank will not hesitate to increase interest rates in order to contain inflation threats, which would tamper the recovery process.

The IMF released a statement today, discussing the debt woes that currently sweeping through Europe, where Naoyuki Shinohara, Deputy Managing Director at the IMF said that “At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited,” adding that “However, if the European sovereign debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks.”

Failing to gain investors confidence “means that skepticism over the sustainability of their debt in the market hasn’t been cleared away,” Shinohara said, adding that “It’s important that countries reduce their budget deficit, but they also need to tackle structural issues including boosting growth and lowering unemployment.”

The Euro rose slightly after the news to trade at 1.3376, compared with the opening levels 1.3360, where it managed to set the highest levels at 1.3457 and the lowest at 1.3320. The pound continued to narrow trade, reaching 1.5842, from the opening levels of 1.5834.

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