Markets brace for increase in US rates

This week: Investors anxious for clues on the global interest rate outlook will have plenty to chew over this week with a US Federal Reserve policy meeting and key inflation and business confidence indicators from the euro zone.

The Fed is expected to lift its benchmark rate to 5.25 per cent at the end of a two-day meeting on Thursday, delivering the 17th consecutive hike since it began tightening policy two years ago.

Worries that higher borrowing costs will curb US consumer spending pushed equity and commodity markets into a tailspin

last month and investors will scrutinise every word of the Fed's statement for clues on whether it intends to raise rates even higher.

Signs that US inflation is on the rise have sent analysts scurrying to revise their interest rate forecasts upwards.

Money markets reflect a better-than-even chance the Fed will raise rates again in August and some investment banks are now predicting rates could go as high as 6 per cent.

Germany's Ifo business confidence survey and preliminary euro zone inflation data could help shape expectations for how high the European Central Bank will raise interest rates this year.

The ECB has raised rates three times since December, to 2.75 per cent, and money markets show investors expect they will rise to at least 3.25 per cent by December. The Ifo survey is due on Tuesday.

The first estimate for euro zone inflation for June is also due on Friday, a day after money supply figures which are also closely watched by the ECB policymakers.

Loans to the private sector in May rose to the highest level since the launch of the euro and further gains this month could encourage the central bank to raise borrowing costs more aggressively. But the bank has so far given little indication it will accelerate the pace of monetary tightening in the euro zone, a factor helping drag the euro to a two-month low against the dollar.

Monday

Meetings: Ireland Japan Association hosts seminar (AIB Bankcentre, Ballsbridge, Dublin).

Indicators: Euro-zone investment flow (April); German consumer prices (June).

Others: IIB and ESRI publish study on Irish consumer debt.

Tuesday

Results: Nike.

AGM: WPP.

Meetings: Project management seminar (Hogan Suite, Croke Park conference centre); Cork Chamber hosts breakfast briefing with Failte Ireland (Clarion Hotel, Cork).

Indicators: US consumer confidence (June); German Ifo index (June) and import prices (May); Japanese retail sales (May).

Wednesday

Results: 3Com.

AGM: Investec (egm), Skyepharma.

Meetings: The Oireachtas Joint Committee on Enterprise and Small Business discusses developing young enterprise; Waterford Institute of Technology foundation lecture series continues with "Branding 4th Level Ireland".

Indicators: Irish tourism and travel (Q1); German Gfk index (July); Japanese industrial production (May).

Thursday

Results: Accenture (Q3).

AGM: African Eagle Resources, Zambezi Resources.

Meetings: Ibec hosts seminar on workplace safety (Merrion Hotel, Dublin).

Indicators: Irish retail sales (April); UK consumer credit (May); US GDP (Q1); German unemployment (June).

Others: US Federal Reserve monetary policy committee meets; ECB president Jean-Claude Trichet gives a speech at the annual meeting of Germany's Ifo economic research institute on euro-zone economic and financial integration; World Trade Organisation (WTO) negotiators to meet for a final push for draft deals in agriculture and manufacturing; Diageo issues trading update; Trinity Mirror issues interim trading statement.

Friday

AGM: Merck, Xstrata (egm).

Indicators: Irish employment in construction (March), balance of international payments (Q1), external debt (Q1), agricultural prices (April) and industrial employment (March); euro-zone flash consumer prices (June); UK GDP (Q1); US personal consumption (May); German retail sales (May); French consumer confidence (June), producer prices (May) and unemployment (May).

Others: CRH issues interim trading statement; the Central Bank and Financial Services Authority of Ireland publishes monthly statistics containing data up to end May 2006; deadline set by World Trade Organisation (WTO) chief Pascal Lamy for a tariff- and subsidy-slashing deal in farm and industrial goods.