With a holiday-shortened week and a dearth of economic releases south of the border, Canadian traders will have to draw inspiration from a decision on interest rates and several notable data reports.

Economists are calling for the Bank of Canada to deliver a 25 basis point rate cut on Tuesday. RBC Financial says that the accompanying policy statement will likely leave the door open to more cuts in the future, too.

BMO Nesbitt Burns, TD Bank and CIBC World Markets are all calling for a cut, although Nesbitt warns that it’s not a slam dunk. “Contrary to some opinions, it is not an open-and-shut case,” it says, noting that the dollar hasn’t moved much recently, the U.S. economy is strong, resource prices are strong, core CPI has been stronger than expected, and employment has been strong for the past four months.

Still, Nesbitt expects the Bank to make the cut. “The conclusion would be that a small trim is justified now, but the underlying strength in U.S. growth suggests that a follow-up cut is no certainty. The Bank will provide a detailed explanation of its latest move just two days after the decision in its semi-annual Monetary Policy Report.”

“A rate cut is essentially priced in, and market reaction could be minimal if, as is likely, the Bank of Canada’s verbiage on Tuesday and its Thursday policy report are no more dovish than the minimum needed to justify that quarter point relief,” CIBC comments. “We doubt that the Bank has fully come around to the view that several rate cuts are going to prove necessary.”

Before the rate decision, traders will see November international security transactions on Monday and the December index of leading indicators on Tuesday.

RBC notes that November manufacturing shipments, inventories and unfilled orders will be reported on Wednesday, and the December Consumer Price Index is slated for Thursday, followed by the latest monetary policy report.

“Factory shipments, like exports, will look sluggish in nominal terms as Canadian dollar prices fall in the midst of exchange rate appreciation, but real shipments should be much healthier,” says CIBC. “An atypically low monthly figure from a year ago drops out of the 12-month CPI calculation, so a still-tame monthly trend will see the year-on-year CPI (both total and core) bumped higher.”

Despite the expected rise in the CPI, Nesbitt says that Canadian inflation is nevertheless poised for a deep descent in the next two months, again as big swings from a year ago drop out of the calculation. “Core inflation is likely to dip below 1.5% by the February reading. However, it is worth noting that the Bank of Canada was expecting core inflation to drop even further in Q1 to an average of 1.2%, before heading back toward 2% in the second half.”

Nesbitt also predicts that a big pullback in auto production and weaker industrial prices suggest that shipments fell 1.5% in November. “However, we continue to stress that the headline results exaggerate the weakness, since shipments are measured in rapidly appreciating Canadian dollars.”

In the United States, markets are closed for the Martin Luther King Jr. holiday on Monday, and it is a light week for economic reports.

December housing starts are due on Wednesday, and weekly jobless claims and the Conference Board Leading Indicators Index for December are slated for Thursday.

CIBC says that housing starts is the only major number, and the dearth of data “will keep the focus firmly on fourth quarter earnings”. It notes that, “Results from early filers have been enough to give a bit of an upbeat tone to equities, and, overall, the Q4 economic picture looks to have been sufficiently robust to make earnings a pleasant surprise.”

“Earnings announcements and politics may highlight the holiday-shortened week in the U.S.,” agrees Nesbitt. “We expect earnings to top expectations, keeping the equity market in a happy mood.”

On the policital front, President Bush will deliver the State of the Union speech Tuesday evening.

With the light economic schedule, traders will likely focus on earnings reports.. Nesbitt says that less than 14% of S&P 500 companies have reported so far. “This will more than double next week with 115 S&P 500 companies scheduled to release fourth quarter results, bringing the total to 37% by the end of the week. The Dow will have its busiest week, with eleven companies due to report, bringing the total to fifteen. Citigroup, General Motors, Johnson & Johnson, SBC Communications, United Technologies and 3M report on Tuesday, JP Morgan reports on Wednesday, AT&T Corp, Eastman Kodak and Microsoft report on Thursday, and on Friday, we get results from Caterpillar.”