America's "fiscal cliff", the name given to the hundreds of billions of dollars in tax rises and spending cuts, will dominate the economic week.
Although most economists agree that lowering America’s staggeringly large deficit is a good thing in the long run, few would argue that doing so rapidly will lead to anything other than recession. Analysts around the world fear that if the world’s largest economy begins to contract, much of the globe will follow.
As the week begins, all eyes will be focused on Washington. Despite months of negotiations, Republicans and Democrats have so far been unable to reach agreement on a deal to avert the expiration of previously legislated tax cuts and previously agreed spending cuts. If a deal does not materialise on Monday, the world’s largest economy will begin its ill-timed and unwelcome austerity experiment on a massive scale.
Beyond the unfolding drama in Washington, several key data releases will keep investors on their toes in the shortened trading week ahead. The biggest of the lot is Friday’s nonfarm payrolls report.
Economists surveyed by Dow Jones expect the report to show that America’s employers increased their headcounts by 150 000 in December, just slightly above the 146 000 positions added in November. The month’s unemployment rate is expected to rise to 7.8% after unexpectedly dropping to 7.7% in November, near a four year low. Analysts attributed the drop to discouraged jobseekers dropping out of the labour market, rather than to more people finding jobs.
Markets will get a preview of Friday’s figures on Thursday when ADP releases the results of its December jobs survey. Analysts expect the results to show that private sector employers added 150 000 positions in December, up from 118 000 in November.
Elsewhere on the calendar, the Institute for Supply Management (ISM) will release December’s manufacturing purchasing managers’ index (PMI) results on Wednesday. Analysts expect the index to rise above the 50.0 mark separating expansion from contraction.
A series of purchasing managers' index (PMI) releases from across the continent will dominate Europe’s economic calendar this week. Manufacturing PMI numbers for Ireland, Sweden, Hungary, Poland, Turkey, Spain, the Czech Republic, Italy, France, Germany, Greece and the United Kingdom along with readings for the eurozone as a whole are scheduled for release on Wednesday. Norway and Switzerland’s figures will follow on Thursday.
With the exception of the peripheral economies of Ireland, Hungary, Turkey and Norway, economists expect these forward looking gauges of activity to remain below the 50.0 mark separating expansion from contraction. Germany and France – the continent’s two largest economies – are expected to remain stuck at 46.3 and 44.6, respectively. Europe’s third and fourth largest economies – the UK and Italy – are both expected to show a slight improvement, but remain mired in contraction territory, as is the eurozone as a whole.
Thursday will be a busy day for data in the United Kingdom. The Bank of England will release mortgage approvals, net consumer credit, secured lending and money supply data and Nationwide – a lender – will release its house prices index.
On Friday, markets will turn their attention to services PMI and composite PMI readings for the eurozone. Economists expect both indices to remain unchanged at 47.8 and 47.3, respectively.
Finally, also on Friday, Germany will release November’s retail sales figures. Analysts expect the data to show that consumer purchases rose 0.8% from October to November following a 1.3% drop from September to October.
HSBC released China’s unofficial purchasing managers’ index (PMI) on Monday. The country’s official PMI – from the China Federation of Logistics and Purchasing (CFLP) – will follow on Tuesday. Taken together, the two indices are expected to confirm a trend toward recovering growth in the world’s second largest economy.
Surpassing flash estimates, the HSBC measure rose to a final reading of 51.5, an improvement on November's 50.5 and the best reading since May 2011 . The CFLP’s index is also expected to show improvement, likely rising to 51.0 from 50.6 in November.
In a recent research note, analysts at Lloyds Bank wrote, “According to our estimates an increase in the output component of the [CFLP] survey to circa 52.7 (from 52.1 in October) would imply industrial production growth of around 10.4% [year on year] in December, up from 10.1% in November and leave [fourth quarter gross domestic product (GDP)] growth on track for 7.9% [year on year]." This would translate into 7.8% growth for 2012 as a whole, down from 9.2% growth in 2011.
Australia’s manufacturing PMIs will also be released on Tuesday. India will follow on Wednesday. Singapore will release its manufacturing and electronics PMIs on Thursday.
Also of note this week, South Korea will release trade balance figures on Tuesday. The same data, plus consumer price index (CPI) numbers, will follow from Indonesia on Wednesday along with CPI numbers from Thailand and GDP figures from Singapore.
With no major releases scheduled on Friday, Hong Kong’s retail sales data will close out Asia’s data week on Thursday.
Argentina’s latest budget data and Mexico’s most recent lending figures will kick off Latin America’s data week on Monday. No releases are scheduled in the region on New Year’s Day. But when investors return to work on Wednesday, they will have plenty of data to greet them.
Brazil – South America’s largest economy – will report purchasing managers’ index (PMI) readings. Analysts at 4CAST expect the country’s PMI to rise to 53.0 from 52.2 last month. A similar measure in Mexico – from the Mexican Institute of Financial Executives (IMEF) – is expected to rise slightly as well, to 54.0 from last month’s 53.8. The IMEF’s non-manufacturing index, however, is expected to show a slight decline, from 53.8 to 53.5.
Peru and Venezuela’s November consumer price index (CPI) readings, an update on Argentina’s tax revenues and Brazil’s latest trade data are also on the docket for Wednesday. Previously released weekly trade figures showed that Brazil posted a $463-million trade deficit during the first week of December and a $1.3-billion trade surplus in the second week. Consensus is for a $1.6-billion surplus for the month as a whole, but economists’ expectations vary widely.
On Thursday, Brazil will release November’s manufacturing producer price index (PPI). Analysts expect to see a 0.25% rise, up slightly from October’s 0.21% uptick.
On Friday, Argentina, Chile and Brazil will report vehicle sales. Brazil will also report November’s industrial production numbers. Markets are forecasting a 0.5% drop in output, month on month, following a 0.9% monthly rise in October.
Middle East and Africa
Israel’s Central Bureau of Statistics will report its second estimate of third quarter growth on Monday. Markets expect no change from preliminary figures which showed that Israel’s economy grew by 2.9% during the three months ended in September, the lowest GDP growth rate recorded in over three years.
The Bank of Israel said last week that it expects the country’s economy to grow by 3.3% in 2012 as a whole – down from 4.6% growth in 2011 – and to slow further to 2.8% growth in 2013. Officials previously forecast 3.0% growth in 2013.
In Africa, South Africa – the continent’s largest economy – will release M3 money supply and private sector credit data on Monday. Analysts at 4CAST expect money supply to have expanded by 4.74%, year on year, in November, down from 5.69% growth in October. Private sector credit extension – including investments, bills, instalment sale credit, leasing finance, mortgage advances and other loans – is expected to slow to 8.23% year on year growth in November from 8.35% growth in October.
On Thursday, the Bureau of Economic Research will release South Africa’s November purchasing managers’ index (PMI) readings. This key indicator of future economic activity remained stuck below the 50.0 mark separating expansion from contraction for the third consecutive month in November, rising to 49.5 from 47.1 in October.
Elsewhere on the continent, Egypt and Morocco will release third quarter GDP figures and Kenya and Uganda will release December’s CPI data on Monday.
Matt Quigley writes the weekly economic preview for the Mail & Guardian. You can follow him on Twitter at @mattquigley.