Monetary policy decisions by the US Federal Reserve and SA Reserve Bank will keep economists and investors on the edge of their seats this week.
South African officials are widely expected to leave rates on hold, but their American counterparts may make big news by scaling back their stimulus programme. Here is your guide to the meetings, data releases and other events likely to move markets over the coming days.
The South African Reserve Bank will announce its latest rates decision on Thursday. Officials have kept rates at a 40-year low since July 2012 and are widely expected to do so again this week.
Economists surveyed by Reuters expect the central bank’s monetary policy committee to leave the repo rate on hold at 5.0% at least until the second quarter of next year, when they will likely begin a tightening cycle.
Policymakers are balancing concerns over lacklustre economic growth against above-target inflation. August’s inflation figures – scheduled for release on Wednesday – are expected to show that consumer inflation accelerated to 6.4% last month from a year earlier, up from 6.3% in July and above the upper end of the central bank’s 3.0% to 6.0% target range.
The US Federal Reserve’s anticipated reduction of stimulus is expected to weaken South Africa’s currency further against the dollar, adding to import price pressures. Analysts expect that headline inflation will remain above the Reserve Bank’s target for an extended stretch, despite official projections that the breach will be short-lived.
Elsewhere on the continent this week, Monday will bring June's M2 money supply figures from Ghana and July’s figures from Namibia along with Kenya's July overseas remittances figures. Nigeria – the continent’s number two economy – will report last month’s consumer price index (CPI) reading on Tuesday and Egypt’s central bank will announce its latest monetary policy decision on Thursday.
On the political calendar, Rwanda will hold parliamentary elections beginning on Monday. President Paul Kagame’s Rwandan Patriotic Front is widely expected to win the elections comfortably. Two separate grenade attacks, which authorities blamed on political dissidents, killed two people and wounded 36 in Kigali on Friday and Saturday.
A two-day meeting of the Federal Reserve’s policy-setting arm, the Federal Open Market Committee (FOMC) is the big item on America’s economic calendar this week. The FOMC will announce their rates and stimulus decisions on Wednesday.
Officials have pledged to keep short-term interest rates at close to zero until America’s jobless rate has fallen to 6.5% from its current 7.3%, so no change to policy rates is expected this week. A reduction in the size of the central bank’s asset purchase or quantitative easing programme is widely anticipated, however.
In June, Fed chief Ben Bernanke said that he expects the central bank to stop buying bonds entirely when America’s unemployment rate hits 7.0%. With the unemployment rate now sitting at 7.3%, most economists believe that officials will begin reducing, or "tapering", their purchases as early as this week’s meeting.
Consensus is that policymakers will reduce the pace at which the central bank is printing money to buy bonds by $10-billion per month from the current rate of $85-billion per month. Analysts at Goldman Sachs expect scaled-down Treasury purchases rather than reduced mortgage backed securities (MBS) buying.
Beyond the Fed’s meeting, US investors will be on the look-out for several key data releases this week. August’s industrial production figures will kick things off on Monday. Last month’s consumer price index readings will follow on Tuesday along with the National Association of Home Builders’s September housing market index.
More housing data is expected on Wednesday – August housing stats – and Thursday – last month’s existing home sales. Thursday will also see the release of current account data, weekly jobless claims figures and the Philadelphia Fed’s closely-followed regional manufacturing index.
Auditors from the International Monetary Fund (IMF) and European Union will head to Portugal on Monday to check on the country’s compliance with the conditions of its €78-billion bailout package. The team’s visit was pushed-back from July after political turmoil threatened Prime Minister Pedro Passos Coelho’s government with collapse.
The situation in Portugal has since stabilised, but the government was dealt a fresh setback last week when the country’s constitutional court struck down a civil service restructuring plan. Passos Coelho and his colleagues are now scrambling to find a way to replace the €894-million in savings that the programme was to have generated over the next three years.
The United Kingdom (UK) will release last month’s inflation figures on Tuesday. Consensus is that the consumer price index rose 0.4% on a monthly basis in August. On an annual basis, consumer inflation likely eased to 2.7% growth in August from 2.8% growth in July. Inflation is expected to continue to fall over the coming months, possibly falling close to the Bank of England’s 2.0% target within the fourth quarter of 2013.
Also on Tuesday, Germany’s Zentrum für Europäische Wirtschaftsforschung (ZEW) will release its closely-followed expectations index for September. Analysts expect the forward-looking indicator to improve to a reading of 44.0 from 42.0 last month. The ZEW current conditions index is also likely to show improvement.
On Thursday, attention will shift to the UK’s latest retail sales report. Analysts expect the release to show that consumers pulled back on spending in August. Excluding automotive fuel sales, purchases probably rose 0.5% from July to August, down from a 1.1% monthly climb from June to July.
There are no major data releases scheduled in China and few elsewhere in the region this week. Highlights on the sparse docket include India’s inflation figures on Monday, Japan’s trade figures on Thursday and the Reserve Bank of India’s rates decision on Friday.
Analysts at 4CAST expect India’s wholesale price index to have climbed further above the Reserve Bank of India (RBI)’s 5.0% comfort level in August, likely having edged up to 5.8% year on year growth last month from 5.79% in July.
On Thursday, analysts surveyed by Market News International expect Japan’s latest trade figures to show that the world’s number three economy posted its 14th consecutive trade deficit last month.
During the first 20 days of August, exports rose 16.8% from a year earlier. Economists expect the full monthly figures to show that exports rose 15.1% year on year. If the forecast proves accurate, last month would mark the largest jump recorded since August 2010’s 15.5% gain.
Imports rose 21.2% during the first 20 days of August. Analysts expect an 18.5% rise for the month as a whole, down from a 19.6% year on year rise in July. As a result, Japan is likely to announce a ¥1.070-trillion trade deficit, up slightly from July’s ¥1.028-trillion gap.
On Friday, the RBI will announce its latest monetary policy decision. This week’s meeting is the first to be chaired by the central bank’s new chief, Raghuran Rajan. Most analysts expect the bank to leave rates unchanged. A further sell-off in the rupee in the wake of the Federal Reserve’s decision on Wednesday, however, could increase the likelihood of a rate hike.
Matt Quigley writes the Mail & Guardian’s weekly economic preview. You can follow him on Twitter at @mattquigley.