Last week's market carnage in the US and Europe spread to Asia this morning. Now the ball is in the central banks' court, writes Matt Quigley.
Investors are running scared following a disappointing US jobs report, weak manufacturing data in China and a host of European worries.
In the week ahead, economists and investors will look to central bankers for assistance. The European Central Bank, Bank of England and Reserve Bank of Australia will meet this week and Federal Reserve chairman Ben Bernanke will testify in the US Congress. Here is your guide to these and other events likely to move markets in the days ahead.
In the wake of Friday’s disappointing US jobs report – the weakest in a year – investors’ calls for additional stimulus measures from the Federal Reserve have reached a fevered pitch.
As a result, markets will be listening even more attentively than usual to central bankers in the week ahead. And they will have plenty of opportunities to do so.
Three regional bank presidents will deliver public remarks on Tuesday. The Fed’s vice chair – Janet Yellen – and bank chiefs from Atlanta and San Francisco will speak on Wednesday. Fed chairperson Ben Bernanke will testify in Congress on Thursday and the head of the Minneapolis Fed will speak on Friday.
Analysts are not expecting any definitive policy pronouncements, but will be looking for hints of future action. The Fed’s current $400-billion stimulus programme – dubbed “Operation Twist” – is set to expire at the end of this month.
Other events to watch in America this week include the release of April’s factory orders data on Monday and the Institute for Supply Management’s non-manufacturing index, covering 90% of the economy, on Tuesday. Economists expect both gauges to remain essentially flat.
First quarter labour productivity and cost figures – indicators of future inflationary trends – will be released on Wednesday. Weekly jobless claims data will follow on Thursday. Economists surveyed by Dow Jones expect that first time filings fell by 5–000 last week.
Finally, on Friday, analysts expect commerce department data to show that America’s trade deficit narrowed to $49.5-billion in April from $51.8-billion in March.
The European Central Bank (ECB) will take centre stage this week as policymakers gather on Wednesday to consider interest rates. Markets expect the ECB’s governing council to leave rates on hold at 1.0%, but will be anxious to hear what Mario Draghi – the bank’s president – has to say about the continent’s rapidly deteriorating situation in his press conference.
On the data front, officials will release the eurozone’s composite purchasing managers’ index (PMI) – an indicator of future activity in both the services and manufacturing sectors – and retail sales figures for May on Tuesday.
Analysts expect the composite PMI to hold steady at a reading of 45.9, well below the 50.0 mark separating expansion from contraction. Retail figures may be equally downbeat, likely dropping 0.2%, month on month.
Also on Tuesday, Germany – Europe’s largest economy and industrial powerhouse – will release factory orders data. Analysts expect to see a 1.0% decline in orders from March to April. Industrial production numbers will follow on Wednesday and are also expected to fall by 1.0%
On Thursday, attention will shift to Spain where the treasury will attempt a bond auction. The yield on Spain’s 10-year bond – which represents the government’s cost of borrowing – hit 6.7% on Thursday, perilously close to the 7.0% mark at which other European nations were forced to seek emergency funding.
Finally, the Bank of England will announce its latest decisions on Thursday. Economists are speculating that policymakers will leave rates on hold but may announce another £50-million in quantitative easing.
On Tuesday, policymakers at the Reserve Bank of Australia (RBA) will announce their latest rates decision. Central bankers cut the country’s key cash rate by 50 basis points to 3.75% at their May meeting, the largest rate cut since February 2009.
It is unclear what, if any, action will occur at this week’s meeting. A slight majority of the economists surveyed by Reuters expect the RBA to hold rates steady. But a growing chorus of analysts – including those at both Westpac and National Australia Bank, two of the country’s largest banks – forecast a 0.25% cut.
On Friday, Japan – the world’s third largest economy – will release current account and trade data for April. Economists surveyed by Market News International expect the figures to show a current account surplus of ¥464.1-billion, a 9.5% year on year increase and the first in 14 months. The country’s trade balance is forecast to show a deficit of ¥451.8-billion.
Also on Friday, officials from the Bank of Korea will announce their latest rates decision. Markets expect the bank to leave the base rate on hold at 3.25%. Governor Kim Choong Soo and his colleagues have left South Korea’s borrowing costs unchanged for 11 straight months.
A series of inflation figures scheduled for release in Brazil this week may confirm that central bankers and government officials have room to implement further rate cuts and additional stimulus measures to boost growth.
Figures released on Friday showed that Brazil – South America’s largest economy – performed poorly in the first three months of the year, hit by the effects of uncertainty in Europe and a slowdown in China, the country’s largest trading partner. Gross domestic product (GDP) expanded by just 0.2%, quarter on quarter.
On Monday, the Fundacao Instituto de Pesquisas Economicas (FIPE)‘s monthly consumer price index is expected to show that the rate of consumer price rises in Sao Paolo – the country’s biggest metropolitan area – eased from 0.47% in April to 0.34% in May.
Two other measures of inflation – scheduled for release on Thursday – are also expected to fall. The Foundation Getulio Vargas (FGV)‘s Indice Gerais de Precos (IGP-DI) – a weighted average of wholesale prices, consumer prices and construction costs – is forecast to decline slightly.
The country’s official consumer price index – compiled by the Instituto Brasileiro de Geografia e Estatística (IBGE) – is expected to show a monthly rise of 0.42% in May, down from 0.64% in April.
News from Europe will continue to dominate African markets and currency movements in the week ahead, but a series of domestic data releases in South Africa – the continent’s largest economy – and a rates decision in Kenya will also attract the attention of economists and investors.
On Monday, FNB and Absa will report house price indices for May, the National Association of Automobile Manufacturers of South Africa will release last month’s vehicle sales figures and the South African Chamber of Commerce and Industry will issue their latest business confidence index (BCI). The Bureau for Economic Research’s quarterly BCI will follow on Tuesday.
On Thursday, Statistics South Africa will report mining and manufacturing numbers for April. Both sectors contracted in March, by 9.8% and 2.7%, year on year, respectively. Economists expect to see slightly better numbers in this week’s releases.
Elsewhere on the continent, Kenya’s central bank will meet this week to consider interest rates. Analysts had expected policymakers to cut rates after inflation eased more than expected last month, but the central bank has less room to manoeuvre now that a spike in global risk aversion has caused the country’s local currency – the shilling – to weaken significantly against the dollar.
Matt Quigley writes the weekly economic preview for theMail & Guardian. His roundup of last week’s top economic stories can be found here.