Economic week ahead: A new twist?
The United States Federal Reserve's final policy meeting of the year and a European Union summit will dominate the economic week ahead.
With the US central bank's Operation Twist winding down, will officials announce new stimulus measures? Will the EU make progress on its plans for economic and monetary union? These are two of the questions likely to preoccupy investors over the coming days. Your complete guide follows.
The US Federal Reserve's final policy meeting of the year will dominate America's economic calendar this week. The Federal Open Market Committee will announce its latest policy decisions at the conclusion of its two-day meeting on Wednesday. Markets broadly expect the central bank to announce additional stimulus measures.
The central bank has implemented three rounds of quantitative easing since 2008. In the first round, which ran from November 2008 to March 2010, the Fed bought $1.75-billion in long-term treasury bonds and other securities. In the second round, which ran from November 2010 to June 2011, the bank bought $600-billion in bonds. The third round, which began with $40-billion in monthly purchases of mortgage-backed securities in September 2012, is on-going.
In addition to these measures, officials announced a further programme designed to lower long-term interest rates in September 2011, Operation Twist. Under this unconventional initiative, the central bank has sold roughly $670-billion short-term securities to fund the purchase of long-term bonds. The large-scale purchase of long-term assets drives their prices up and their yields down.
The problem for the bank is that it is running out of short-term securities to sell. But with officials still concerned over lacklustre growth prospects, few believe that the bank will let the programme lapse without a replacement. Economists expect that the most likely option is for the reserve bank to announce its intention to begin buying $40-billion or so per month of treasury bonds, bringing the bank's total monthly securities purchases to roughly $85-billion.
The last scheduled European summit of the year will dominate economic news from the continent this week. European Union leaders will gather in Brussels on Thursday and Friday to discuss European Council president Herman van Rompuy's proposal for "genuine economic and monetary union" for the region.
As Europe's heads of state debate contentious elements of the plan – including increased powers for central authorities to oversee national budgets and the establishment of a single banking supervisor for the continent – Europe's finance chiefs will meet to consider Greece's next loan tranche. The group is widely expected to approve disbursement of €34.4-billion in additional aid on Thursday.
On the data calendar, Tuesday's release of economic sentiment indices by the ZEW Institute will attract widespread investor attention. Markets expect the index covering sentiment in Germany – Europe's largest economy – to rebound from a reading of minus 15.7 to minus 10.0. The index covering the eurozone as a whole, however, is forecast to show further deterioration.
On Friday, markets will focus on flash purchasing managers' index (PMI) readings for the eurozone, Germany and France. In the wake of last week's bleak economic forecast for the region by the European Central Bank, investors will be paying particularly close attention to these forward-looking indicators of economic activity.
Markets expect the eurozone composite PMI to rise slightly – from 46.5 to 46.8 – but remain well below the 50-mark separating expansion from contraction. Germany's manufacturing PMI is forecast to rise from 46.8 to 47.3 and France's index may rise from 44.5 to 44.9.
China reported November's retail sales, fixed asset investment, industrial production and inflation figures on Sunday. Taken as a whole, the data confirmed market expectations that the world's second largest economy is on a decent recovery path.Retail sales rose 14.9%, above expectations. Fixed asset investments rose 20.7%, below expectations. Industrial output rose 10.1%, the first time production grew by double-digits since March. And consumer price inflation rose by 2%, slightly below the 2.1% markets had forecast.
Elsewhere in the region, Japan – Asia's second largest economy – will release October machinery orders data and November's corporate goods price index on Wednesday. Markets expect machinery orders to show their first gain in three months. Analysts surveyed by Market News International forecast a 2.3% month-on-month rise. The index is expected to show its eighth consecutive monthly drop.
India – Asia's third largest economy – will release October's industrial production data on Wednesday and November's wholesale price index (WPI) on Friday. Analysts expect industrial output to have risen 5.0%, year on year, following a 0.4% decline in the previous month. WPI inflation is expected to tick slightly lower from October's 7.45% year on year rise.
In between, South Korea's central bank will announce its latest rates decision on Thursday. The Bank of Korea cut rates in July and October in a bid to bolster growth in Asia's fourth largest economy, but left the benchmark repo rate on hold at 2.75% in November. Economists widely expect officials to sit on their hands this week too.
On Monday, Brazil's Foundation Getulio Vargas will release its monthly general price index – used as a benchmark for contracts, rent, electricity and other administered prices. Mexico – the region's second largest economy – will release September's gross fixed investment data and Chile will release vehicle sales data.
On Tuesday, Peru will release trade figures and the United Nations' Economic Committee for Latin America and the Caribbean will publish its preliminary overview of the region's economies in 2012 and growth projections for 2013. The committee's current forecast predicts 3.2% growth for the region in 2012 and 4.0% growth in 2013.
On Wednesday, Colombia will release trade balance numbers and Mexico will issue October's industrial production figures. Analysts expect Mexican factory output to have increased 0.3% from September to October, down from seasonally adjusted growth of 0.9% from August to September.
On Thursday, data from Brazil is expected to show that retail sales in the region's largest economy rose for a fifth straight month in October. Markets expect to see 0.7% monthly growth, up from 0.3% growth in September.
Also on Thursday, Chile's central bank will meet to consider interest rates. Economists widely expect officials to leave the bank's nominal overnight rate on hold at 5%.
Finally, on Friday, Brazil will release proxy GDP figures. Mexico will release aggregate supply and demand numbers. Argentina will release consumer price index (CPI) and WPI readings and Peru will issue its fourth quarter inflation report.
The week ahead will be heavy with data releases in South Africa, the continent's largest economy. Statistics South Africa (Stats SA) will release October's tourism accommodation, transport, food and beverage sales and tourism figures on Monday. October's retail sales, mining and manufacturing data will follow on Tuesday.
Economists expect annual retail sales growth to have slowed from 4.3% in September to 3.6% in October. Manufacturing production is forecast to drop 4.5%, year on year.
Output from the mining sector – which lost as much as R15-billion in September as a result of strike action – will remain negative. Mining output fell 12.7% in the third quarter and is not expected to reach full production levels until January 2013 when companies return from their holiday break.
Stats SA will release November's CPI on Wednesday and producer price index on Thursday. Analysts expect consumer inflation to have risen 0.1%, month on month, in November, down from a 0.6% uptick in October. Prices at the factory gate are expected to have risen slightly.
Closing out South Africa's week, Stats SA will release October's motor trade, civil cases for debt and wholesale trade numbers along with November's liquidations data and the Bureau for Economic Research will issue its fourth quarter inflation expectations survey on Thursday.
Elsewhere in Africa Egypt, Ghana and Namibia will release their November CPI readings on Monday, Wednesday and Thursday respectively. Namibia will announce its latest rates decision on Wednesday and Kenya will fix petrol prices on Friday.
Matt Quigley writes the weekly economic preview for the Mail & Guardian Online. You can follow him on Twitter at @mattquigley.