Economic week ahead: Inflation expected to average at 5.9%
South African Reserve Bank projections point to headline inflation averaging 5.9% this year. Officials expect inflation to temporarily breach the upper end of the central bank's 3% to 6% target range – averaging 6.3% in the third quarter – before returning to within the target range in the fourth quarter.
Reserve Bank governor Gill Marcus said last week that the rand exchange rate continues to pose the main upside risk to inflation. The rand has depreciated by 14.2% against the dollar since the beginning of the year. A recent Reuters poll suggests that the local currency may appreciate, however, to R9.70 to the dollar by year's end.
Statistics South Africa will release May's food and beverage sales, tourism accommodation and transport statistics and June's business liquidations data on Monday. Last month's consumer and producer inflation readings will follow from the agency on Wednesday and Thursday, respectively.
The Central Bank of Nigeria's monetary policy committee (MPC) will meet on Monday and Tuesday to consider interest rates. By a majority vote of seven to three, the MPC left the bank's monetary policy rate (MPR) unchanged at 12% at their previous meeting.
Consumer inflation in Nigeria – Africa's second biggest economy – declined further in June, despite higher food price inflation. But policymakers remain concerned about the naira's exchange rate, the country's foreign exchange reserve levels and fiscal situation – particularly in the event of a negative oil price shock. As a result, the MPC is likely to refrain from policy easing again this month.
The Federal Reserve Bank of Chicago's national activity index – a weighted monthly index of 85-existing indicators – will kick-off America's data week on Monday. Consensus is that the bank, which is designed to measure overall economic activity and related inflationary pressure, returned to positive territory in June after signalling contraction in the three previous months.
Next up, Monday's existing home sales data is expected to show that the pace of existing home sales rose to a seasonally adjusted annualised rate (SAAR) of 5.27-million units in June from 5.18-million in May.
New home sales data, which will follow on Wednesday, are likely to show that the SAAR of newly constructed home sales also increased last month, to 481 000 from 476 000 in May.
On Thursday, attention will turn to June's durable goods orders data and weekly jobless claims figures. Economists expect durable goods orders, which are notoriously volatile, to have risen 1.5% last month, down from a 3.6% surge in May. Initial jobless benefit claims probably rose to 341 000 in the week ended July 20 from 334 000 in the prior week.
Finally, on Friday, the University of Michigan's consumer sentiment index is expected to edge up to a reading of 84.0 in July from 83.9 in June.
In addition to these indicators, the week ahead will also be one of the heaviest of the second-quarter earnings season with 157 of the companies comprising the S&P 500 index scheduled to release results. On the whole, second-quarter reports have been better than expected so far. Roughly two-thirds of the 104 S&P 500 companies that have reported earnings to date have topped analysts' expectations. More than half have beaten revenue estimates.
A series of purchasing managers' index (PMI) results will dominate Europe's economic calendar this week. Flash manufacturing and services PMI numbers for the eurozone and its two largest members – Germany and France – are scheduled for release on Wednesday. The numbers are expected to show that Europe's downturn is continuing to ease.
The eurozone's flash manufacturing PMI is expected to show that the region's manufacturing sector contracted at the slowest pace in 17 months in July. Consensus is that the index rose to a preliminary reading of 49.1 from 48.8 in June. Any reading below 50.0 indicates contraction. The currency bloc's services PMI is expected to rise to 48.7, an improvement on June's 48.3 and the best reading since March of last year. The composite output PMI is forecast to rise to a 16-month high of 49.3 from 48.7 in June.
Germany's manufacturing PMI is likely to improve to 49.2 from 48.6. The country's services PMI will probably signal continued expansion for the sector, likely rising slightly to 50.7 in July from 50.3 in June. France's manufacturing PMI is forecast to rise to a 17-month high of 48.8. The country's services PMI is likely to rise to 47.5 from 47.2 last month.
On Thursday, attention will turn to sentiment readings from Germany's Ifo Institute. The Ifo Institute's business climate, current conditions and expectations indices are always closely watched, but will be even more closely studied this week after Germany's Centre for European Economic Research (ZEW) released a disappointing index of economic sentiment last week. Analysts expect slight improvements to all three indices.
Thursday will also bring preliminary second quarter gross domestic product (GDP) figures from the United Kingdom, Europe's third largest economy. Retail figures released last week showed that sales rose 0.9% in the second quarter. Given the size of retail's contribution to the country's overall GDP, analysts are expecting a decent number.
Japan held elections for the upper house of the nation's parliament on Sunday. Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) and its allies secured a majority, giving control of both houses of parliament to a ruling party for the first time in six years.
Control is significant because it means that Abe may have an easier time instituting aggressive policies aimed at stimulating economic growth and winning the country's long battle against deflation.
Since his coalition came to power in December, Abe has expanded government spending and installed a new governor at the Bank of Japan, Haruhiko Kuroda, who initiated an unprecedented expansion to the bank's asset-buying programme. Structural changes to the country's economy – including regulatory and tax reforms – are next on Abe's agenda.
Elsewhere in the region, July's flash HSBC/Markit manufacturing purchasing managers' index (PMI) will be the most closely scrutinised economic release in Asia this week. Flash results are based on the responses of approximately 85% to 90% of total respondents and are released about one week before final results.
This forward-looking gauge of economic activity fell for the second consecutive month in June to 48.2 – its lowest level since September 2012 – from 49.2 in May. Analysts expect this Wednesday's figures to point to continued contraction.
Chinese officials are attempting to slow economic growth to more sustainable levels following years of roaring expansion. Reduced demand and investment is expected, but economists and investors around the world are watching closely to see if the world's number two economy can pull off deceleration without inducing a sharp slowdown or recession.
Matt Quigley writes the Mail&Guardian's weekly economic preview. You can follow him on Twitter at @mattquigley.