With A Cut by the MPC Today very much anticipated….. 

… and built in, we might as well turn our attention to the outlook for Europe, Germany and Euro interest rates.

We know that tomorrow's UK data (industrial production) will be grim but we also know that the MPC will know that the numbers prior to their decision today. Therefore, the immediate outlook for the Eurozone becomes more intriguing. Recent German data has shown unemployment on the rise (the first move in this direction for 3-years) and the releases over the next couple of days will reinforce the negative sentiment. Tomorrow's industrial production numbers are estimated to be poor to the extent of being horrible. Using different bases, the figure is projected to show a fall of somewhere between 4% and 7% with the biggest component of the drop coming from the automotive sector with domestic vehicle sales down by a massive 6.6% from 1-year ago and trending still lower. It is a similar story in France with industrial output projected to show a 9% decrease, again with automotives the main culprit. The ‘piece de resistance' however could/will be the German GDP figures scheduled for release next Wednesday. This will not only indicate the first estimate for the 4th Quarter but will also produce the first estimate of GDP for the whole of 2008. Now I am not up to calculating what this figure is likely to show but a company that is has come up with the following guestimate. Based upon the already known IFO index and retail sales figures plus their projection for industrial production, they have come up with a seasonally adjusted annualised rate of decline of 8.8%. Now data like this being released the day prior to the ECB meeting to decide interest rates levels is not what the committee would want to hear. It would make it very, very difficult for them NOT to produce a swathing cut in rates, probably on the back of a sharply weaker Euro. It could make next Wednesday & Thursday very lively indeed and make today's MPC decision and market reaction pale into insignificance. There is also a raft of EU data due today which are again expected to paint a continued dour picture of the Eurozone economy.

From the US we get Jobless Claims this afternoon. These will likely be worse than the 4-week average following the massively worse than expected ADP jobs figure yesterday which showed that the US lost 693,000 private-sector positions in December. It means that today's data will take a back seat to tomorrow's Non-Farm Payroll numbers. Given that the recent correlation between the ADP figure and NFP figure has been extremely strong, earlier estimates for tomorrow's number have been dramatically updated from 500K to about 700K. If the fall is that great then despite the fact that it was mooted won't help the Dollar.