Economic week ahead: Deposit seizures?
A two-day meeting of the US Federal Reserve's policy setting arm – the Federal Open Market Committee – is the big item on America's economic calendar this week.
Policymakers are expected to leave rates and the size of central bank's bond purchasing programme on hold, but markets will still pay close attention to chairperson Ben Bernanke's post-meeting statement and press conference on Wednesday. They will be looking for clarity on the Fed's economic outlook and for guidance on how much longer the fed's asset purchase programme will last.
Beyond the fed's meeting, economists and investors will focus on a series of housing sector reports scheduled for release over the coming days.
On Monday, the National Association of Home Builders will release its housing market index for March. Economists surveyed by Dow Jones expect this month's confidence index to rise to 48 from 46 in February.
On Tuesday, government data is likely to show that housing starts rose 1.6% last month following January's 8.5% decline. Building permits – an indicator of future building activity – likely rose 1.8% in February, up from a 0.6% fall in January.
On Thursday, the Federal Housing Finance Agency will release its house price index and the National Association of Realtors will release existing home sales data. Markets expect the agency's index to show a 0.7% month on month rise for January, an improvement on December's 0.6% rise. Existing home sales are forecast to have risen to a seasonally adjusted annualised rate of 5.01-million units in February from 4.92-million in January.
The tiny island of Cyprus will remain in the spotlight this week. The country's Parliament will consider on Monday whether or not to approve a proposal by the European Union and International Monetary Fund to seize depositors' money to help pay for a desperately needed and long awaited bailout package.
After talks on Friday, European finance ministers, the International Monetary Fund and Cypriot President Nicos Anastasiades agreed to a €10-billion bailout package for Cyprus. Controversially, unlike previous bailouts within the eurozone, European officials are demanding that depositors into Cyprus' banks pay a one-time 6.75% levy on insured deposits less than €100 000 and a levy of 9.9% on uninsured deposits over €100 000 to help fund the bailout. The estimated asset seizures, if approved, would amount to almost €6-billion.
In order to ensure that depositors did not take money out of banks before government could confiscate their savings, cash machine withdrawals were limited over the weekend and wire transfers were prohibited. Banks will remain closed on Monday for a holiday.
Many economists fear that, if enacted, the deposit seizures – particularly of insured deposits – will further undermine trust in Europe's banks and make potentially catastrophic bank runs more likely in Spain, Italy and other European countries that may require external assistance in future. European officials have said that the Cyprus situation is unique, but many believe that an alarming precedent has been established.
If Cyprus' parliament does not approve the proposal on Monday, the entire aid package could be scrapped leading to destabilising bank failures and debt defaults.
The Reserve Bank of India will announce its latest monetary policy decision on Tuesday. Policymakers are balancing concerns over growth against those over inflation.
India's economy slowed to 4.5% growth in the three months ended in December, the slowest rate of expansion for the country in more than 10 years. Data released last week showed that India's wholesale price index – the country's main measure of prices – rose to 6.84% in February from 6.62% in January. The unexpected acceleration in inflation in Asia's third largest economy was the first since September of last year.
Despite last month's unwelcomed inflation spike, most economists expect policymakers to lower the reserve bank's 7.75% repo rate and 6.75% reverse repo rate by 25 basis points each at this week's meeting in a bid to bolster growth. The monetary policy committee is expected to leave the bank's cash reserve ratio on hold at 4%.
On Wednesday, Harukiko Kuroda will take over as chief of the Bank of Japan. Markets have high hopes that Kuroda, a long-time critic of the central bank's timidity, will act aggressively to win the country's decades-long fight against inflation.
On Thursday, markets will turn their attention to flash results for March's HSBC China manufacturing purchasing managers' index (PMI). HSBC's PMI results for February badly missed consensus expectations. The index dropped to 50.4, just above the 50-mark separating expansion from contraction. With the PMI sitting right above the contraction line, economists and investors will be watching this week's number particularly closely.
Brazil – Latin America's largest economy – will release formal job creation figures on Monday. Analysts expect the General Register of Employed and Unemployed Persons – a monthly count of formal jobs created in Brazil's 27 states and federal districts – to show that 95 295 jobs were registered in February, up from 28 900 in January.
Mexico – the region's number two economy – will release aggregate supply and demand figures on Tuesday. Analysts expect fourth quarter figures to show that supply increased 3.2% in the fourth quarter of 2012, up from 2.6% in the third.
On Thursday, Mexico's National Institute of Statistics, Geography and Informatics will release January's retail sales figures. Sales unexpectedly fell 1.8% in December from a year earlier, marking the worst month for sales since Mexico's economy began emerging from recession three years ago. Markets anticipate January's numbers to show a rebound to 2% growth.
On Friday, Brazil will release February's current account and foreign investment data and Mexico will report its unemployment rate and release the minutes of last week's central bank meeting, at which officials surprised markets with a 50-basis point rate cut.
Consensus is that the Brazil's current account deficit narrowed to $4.250-billion in February from a record $11.371-billion gap in January. Foreign investment likely fell to $3.621-billion last month from $3.703-billion in January.
After falling to its lowest level since 2008 in December, Mexico's unemployment rate unexpectedly jumped to 5.42% in January. Analysts forecast a drop in February's figures to between 5.3% and 5.4%.
Middle East and Africa
Consumer price index (CPI) numbers and a rates decision are the two big items on South Africa's economic calendar this week. Statistics South Africa will release last month's consumer inflation figures on Tuesday. The South African Reserve Bank (SARB)'s Monetary Policy Committee (MPC) will announce their rates decision on Wednesday.
Inflation eased to 5.4% in January from an average 5.6% in 2012, but is widely expected to have picked back up to 5.6% in February. SARB expects inflation to breach the upper-limit of its 3% to 6% target range in the third quarter.
Markets do not expect the MPC, whose primary mandate is price stability, to make changes to the central bank's 5% repo rate at their meeting this week. Officials last cut rates by 50-basis points in July 2012.
Nigeria – Africa's second largest economy – will also report last month's inflation figures on Monday, a day before the country's central bank announces its rates decision. Nigeria's consumer price inflation declined to single digits in January for the first time since August 2011. According to the National Bureau of Statistics, CPI increased by 9% year on year in January, down significantly from 12% in December.
Despite January's drop, economists remain concerned that disruptions to food supplies and an increased demand for staple crops will cause price pressures to accelerate over the coming months. Against that backdrop, markets expect the Central Bank of Nigeria to leave its benchmark rate on hold at 12% at this week's meeting.
Matt Quigley writes the weekly economic preview for the Mail & Guardian. You can follow him on Twitter at @mattquigley.