Economic week ahead: Pressure on central banks
At this time last year, global markets began a negative run that wiped out nearly a fifth of their value by the end of September 2011. With recent data pointing to deteriorating conditions across much of the world, investors are hoping that central bankers will do everything within their power to prevent a repeat of the carnage witnessed last year.
This week, a series of data releases – particularly in Europe – will illustrate the scale of the challenge they face. Here is your guide to the central bank meetings, data releases and other events likely to move markets in the week ahead.
Friday's monthly jobs report will dominate a busy economic calendar in the US this week. Analysts surveyed by Dow Jones expect figures to show that the world's largest economy added 90 000 jobs in July, up from 80 000 in June, but still far below the pace needed to reduce the country's 8.2% unemployment rate.
Elsewhere on the economic calendar, Tuesday will bring a slew of data to the markets. Economists expect last month's personal income and outlays report to show that incomes rose 0.4% last month, up from a 0.2% rise in May. Outlays, which were flat in May, are forecast to have risen 0.2%.
The second quarter's employment cost index is seen rising 0.5%, up slightly from the first quarter's 0.4% increase. The S&P/Case-Shiller housing price index is expected to decline 1.5%, year-on-year, and the conference board's consumer confidence index is forecast to fall from 62 to 61.
Wednesday will be another full day. In addition to a Federal Reserve policy meeting, the day will see four closely followed data sets released. July's vehicle sales are expected to fall slightly, to an annualised pace of 14-million units. The ADP national employment report is expected to show that companies added 105 000 positions in July, down from 176 000 in June.
The Institute for Supply Management's national purchasing managers' index (PMI) is seen rising slightly to 49.8 this month, still below the 50-mark separating expansion from contraction. Data from the Census Bureau is expected to show that the dollar value of new construction activity rose 0.4% in June, down from 0.9% in May.
On Thursday, new filings for jobless benefits are expected to rise to 365 000 from 353 000 last week. Factory orders are seen rising 0.7% in June, flat from May's levels.
Markets will be watching the European Central Bank (ECB) very closely this week. The bank will announce its latest policy decisions on Thursday and expectations for action are running particularly high.
Last week, ECB chief Mario Draghi said that the bank was "ready to do whatever it takes to preserve the euro." This week, markets will be looking for the central banker to put action behind his words, but many suspect that investors will be disappointed.
Most economists believe that the bank has three principal tools at its disposal: institute further interest rates cuts with a negative deposit rate; provide further cheap money to the continent's banks, on top of the more than €1-trillion it has already provided; or revive its bond-buying programme to lower borrowing costs for deeply indebted governments.
Shortly before the ECB announces its decisions on Thursday afternoon, Bank of England policymakers will announce their latest actions. Analysts expect officials to leave rates unchanged and announce no further stimulus manoeuvres in the wake of their decision to expand the bank's quantitative easing programme by £50-billion to £375-billion at their last meeting.
Data released on Wednesday will probably illustrate the magnitude of the economic problems facing policymakers. Russia, Ireland, Sweden, Norway, Poland, Turkey, Spain, the Czech Republic, Italy, France, Germany, Greece, the UK, Hungary and the eurozone as a whole will release manufacturing purchasing managers' index (PMI) readings. Economists expect another round of grim figures.
The eurozone as a whole is likely to show a reading of 44.1, well below the 50-mark separating expansion from contraction for these forward looking measures of economic activity. Individually, indices in Germany, France, the UK, Italy and Spain – the continent's five largest economies – are expected to remain in contraction territory, as are most other European countries' gauges.
Data from China, Japan and India – the region's three largest economies, respectively – will dominate Asian economic news this week.
On Monday, Japan will release June's industrial output figures. Analysts expect to see a 1.6% rise, the first improvement in three months. Unemployment, household spending and housing starts data will follow on Tuesday.
Economists surveyed by Market News International (MNI) expect the country's unemployment rate to remain unchanged at 4.4%. Household spending is seen rising 2.9%, year-on-year and housing starts are expected to post a 9.5% year-on-year increase.
Also on Tuesday, the Reserve Bank of India will announce its latest rates decisions. Markets expect policymakers to leave the bank's cash reserve ratio on hold at 4.75% and repo rate unchanged at 8%.
Investors will remain focused on India on Wednesday for the release of July's purchasing managers' index (PMI) and June's final trade figures. Analysts at 4CAST expect the PMI to fall slightly from 55 to 54.8.
Preliminary trade figures – released earlier this month – suggest that India's trade deficit probably shrank from $16.3-billion in May to $10.3-billion in June, the smallest trade gap in nearly a year and a half.
On Thursday, attention will shift to China as the China Federation of Logistics and Purchasing (CFLP) releases the country's official PMI. Economists surveyed by MNI expect this forward looking measure of industrial activity in the world's second largest economy to show a slight improvement, rising to a reading of 50.4 in July from 50.2 in June.
Wednesday will be a big day for economic news in Latin America. Brazil will report PMI data and Mexico's Institute of Financial Executives (IMEF) will report this month's manufacturing and non-manufacturing indices.
Markets expect Brazil's PMI to improve, but remain in contraction territory. Mexico's manufacturing index – which rose in the past three months – may show some slippage in this week's print. The non-manufacturing index is expected to show a slight improvement.
Also on Wednesday, the Bank of Mexico (Banxico) will release its latest survey of private sector economists' expectations. Banxico's June survey revealed expectations for 3.7% growth in Latin America's second largest economy for 2012.
On Friday, Mexico will release July's consumer confidence index. The index fell from a four-year high in May to a reading of 95.5 in June but is expected to rebound this month.
Elsewhere in the region, Chile will release retail sales, copper production and manufacturing index figures on Monday and unemployment figures on Tuesday. Also on Tuesday, Columbia will release urban unemployment figures and Argentina will report construction activity data. Peru will report wholesale price changes on Wednesday. Friday will bring producer price index figures from Columbia and vehicle sales data from Argentina.
This week is a busy one for South African data. On Monday, the reserve bank will release July's M3 money supply – the broadest measure of money supply – and private sector credit data.
Markets expect M3 money supply to have increased 6.30%, year on year, down from 6.45% growth in June. Private sector credit is seen rising by 8.45%, year on year, up from 8.31% growth last month.
June's preliminary trade figures will follow from Statistics South Africa (Stats SA) on Tuesday. Analysts expect the country's trade deficit to shrink from R8.9-billion in May to R5-billion in June.
Tuesday will also bring the second quarter's quarterly labour force survey from Stats SA and June's Spark ATM cash index – an indicator of cash availability and spending.
On Wednesday, South Africa's latest purchasing managers' index (PMI), second quarter provincial revenue figures and FNB's housing price index for July will be released. July's vehicle sales data will follow on Thursday.
Elsewhere in the region, central bankers in Angola – Africa's second largest oil producer after Nigeria – will meet on Monday to consider the country's benchmark interest rate. The Banco Nacional de Angola created the average interbank lending rate – the Luibor – in October 2011 and lowered it for the first time – from 10.50% to 10.25% – in January 2012. Policymakers are expected to leave rates on hold at this week's meeting.