US set to raise interest rates

Economics

This week we expect US business confidence indicators (Chicago PMI, ISM surveys) for January to stabilise, suggesting the manufacturing sector is bottoming out.

We expect the Fed to raise interest rates by 25 basis points to 2.50% on Wednesday with the accompanying statement keeping its message of removing policy accommodation at a measured pace.

We expect German unemployment in January to increase due to statistical effects from the Hartz IV reforms. In Japan we expect the leading indicator for December to give back ground.

Foreign exchange

EUR/USD: While the outlook for the coming weeks is bearish, an upward correction cannot be excluded with 1.3205 respectively 1.3295 as candidate resistance levels.

However, entering below the 1.2925 level, would mean that the downtrend resumes with 1.2850 as next support.

USD/JPY: consolidation between 101.60 and 104.70. Watch which level gives way: above 104.70, the outlook would turn bullish towards 107.25 - below 101.60, the outlook would turn bearish towards 98.50.

Fixed Income

A better week in terms of economic news, but US bonds did not reacted to robust data: surprise jump in consumer confidence, durable-goods orders at the highest yearly level since 1994 and again lowerthan-expected jobless claims.

Eurozone consumer confidence indices were up also, confirming the better tone given by leading indicators in the previous weeks.

But ECB chief economist's comments on eurozone growth outlook gave little hope to see any major upside surprise this year, which fits within our outlook.

Equities

After starting the week at a negative tone, caused by nervousness regarding the upcoming figures, markets went higher towards the weekend.

Fourth-quarter earnings reports published last week were in general rather strong, while guidance remained somewhat cautious. We believe markets are in the middle of a pull-back, but the upward longer term trend remains intact.