Nigeria's sharp decline in inflation may be caused by a new 50% cash reserve requirement on public sector deposits held at commercial banks.
Reactions to China's latest manufacturing snapshot and Germany's federal elections will set the tone for markets on Monday. As the week rolls on, attention will shift to growth and consumer spending data in the United States. Here is your guide.
Policymakers at the Central Bank of Nigeria (CBN) will announce their latest monetary policy decisions following a two-day meeting on Tuesday. Most analysts believe that officials will leave the bank's benchmark interest rate on hold at 12.0%, despite a recent drop in headline inflation.
Nigeria's consumer price inflation declined unexpectedly in August to its lowest level in more than four years, the National Bureau of Statistics (NBS) reported last week. The NBS's consumer price index (CPI) fell to 8.2% year on year growth in August from 8.7% in July. The sharp decline in inflation is difficult to explain, given reported price increases in food and non-food items.
One possible explanation is the implementation of a new 50% cash reserve requirement (CRR) on public sector deposits held at commercial banks. The targeted CRR increase – announced by the CBN in July – is intended to reduce excess liquidity in the country's banking system. Reducing the amount of money that can be created by the banking system lowers the supply of local currency – the naira – which supports its purchasing power.
Elsewhere on the continent this week, Ghana and South Africa will release August producer price index (PPI) readings. Ghana and Kenya will also report second quarter gross domestic product (GDP) figures.
The International Monetary Fund (IMF) said last Tuesday that it expects Ghana's economy to expand by 7.0% this year. The IMF expects Kenya – ranked as sub-Saharan Africa's most competitive economy this year by the World Economic Forum – to grow by 5.5%.
On Tuesday, the Conference Board's latest consumer confidence index readings are likely to show that rising interest rates and concerns about the consequences of political brinksmanship in Washington are taking their toll on consumer sentiment. Consensus is that the index dropped to 80.0 this month from 81.5 in August.
On Wednesday, analysts surveyed by Bloomberg expect the Commerce Department's August durable goods orders data to show that, excluding the volatile transportation category, businesses increased their orders by 1.0% in August following a 0.8% pull-back in July. Orders for durable goods show how busy factories will be over the coming months.
Also on Wednesday, a separate Commerce Department report will probably show that new home purchases rose to an annualised rate of 420 000 units in August after falling by the most in three years in July. New home sales plunged by 13.4% in July to an annualised rate of 394 000 units, far below the 448 000 average rate recorded during the first six-months of the year.
On Thursday, revised gross domestic product (GDP) figures are expected to show that America's economy – the world's largest – grew at a 2.6% annual rate in the second quarter. Previous estimates placed growth at 2.5%.
Finally, on Friday, America's monthly personal income and outlays (spending) report is expected to show that consumer spending rose for the fourth consecutive month in August. Consensus is that purchases increased 0.3% last month, up from 0.1% in July. Incomes probably rose by 0.4% in August, the largest monthly gain since February.
The biggest market-driver in Europe this week is likely to be speculation over the implications of Germany's election results. Europe's largest economy held federal elections on Sunday.
As expected, Chancellor Angela Merkel's conservatives emerged victorious, winning 41.5% of the vote. But her coalition partners – the Free Democrats – did not win enough votes to sit in parliament.
Merkel's main opposition, Social Democrat leader Peer Steinbrueck's party won 25.7% of the vote. Their allies, the Green Party and Left Party, won 8.4% and 8.6%, respectively, making a coalition government between Merkel's coalition and the Social Democrats likely.
On the data front, markets will be paying close attention to a series of purchasing managers' index (PMI) reports on Monday. Reports covering the euro zone and its two largest members, Germany and France, are expected to show slight improvement across the board.
Consensus is that the euro zone's manufacturing PMI will rise to 51.6 from 51.4 previously. The currency bloc's services PMI may rise to 51.0 from 50.7 and the group's composite PMI looks likely to tick-up to 51.7 from 51.5 in August. Any reading above 50.0 indicates expansion. Numbers below 50.0 indicate contraction.
Economists expect Germany's manufacturing PMI to rise to 52.0 from 51.8 and the country's services PMI to edge up similarly, from 52.8 to 53.0. France's manufacturing PMI may enter expansion territory at a reading of 50.1 following last month's disappointing 49.7 print. The country's services PMI is likely to signal continued contraction, but at a slower pace than previously.
Asia's trading week began this morning with the release of flash results for the HSBC/China manufacturing purchasing managers' index (PMI). The forward-looking gauge of economic activity rose to 51.2, a six-month high.
Hongbin Qu, co-head of economic research at HSBC, said that the release provided further evidence of a rebound in China.
"We expect a more sustained recovery as the further filtering through of fine-tuning measures [by government] should lift domestic demand. This will create more favourable conditions to push forward reforms, which should in turn boost mid- and long-term growth outlooks," Qu said.
Asia's trading week will close with inflation figures from Japan. Economists expect the data to show that the world's third largest economy is continuing its progress toward mild inflation after decades of deflation.
Japan's consumer price index (CPI) registered its first year on year gain in 14 months in June and rose 0.7% from a year earlier in July, the highest reading recorded since November 2008.
Economists surveyed by Market News International expect the Ministry of Internal Affairs and Communications' data to show that Japan's national core consumer price index (CPI) rose 0.7% from a year earlier in August, matching July's gain.
Matt Quigley writes the Mail & Guardian's weekly economic preview. You can follow him on Twitter at @mattquigley.