US political developments will affect global markets as feuding politicians may temporarily shut down portions of its federal government.
Global markets will be following political developments in the United States and Italy closely this week. Feuding politicians in Washington may temporarily shut down portions of the US government while their counterparts in Rome will hold a confidence vote in the country's coalition government.
On the economic front, key data updates are expected from throughout the world and the European Central Bank, Reserve Bank of Australia and central banks in Angola, Mauritius and Zambia will announce their latest monetary policy decisions over the coming days. Here is your guide to the data, debates and decisions likely to drive markets in the week ahead.
America's government appears to be barrelling toward partial closure on Tuesday. If Republicans – who control the House of Representatives – and Democrats – who control the Senate – are unable to resolve their differences, the federal government will partially shut-down for the first time in 17 years.
Republicans have linked legislation to keep the government running to a measure to delay the implementation of US President Barack Obama's controversial healthcare reforms by one year. Senate Democrats have said that they will not pass the Bill and Obama has promised a veto even if they did.
If Republicans and Democrats cannot agree to a compromise by Tuesday morning, government will cease certain operations. The Senate will vote on Monday on the House's latest proposal. If they vote the measure down, as they are widely expected to do, the shutdown will be official.
Beyond the political drama playing out in Washington, economists and investors will be on the look-out for a few key pieces of economic data this week. Chief among them are weekly jobless figures on Thursday and the government's monthly employment situation report on Friday.
Last week's jobless claims report showed that new claims for federal jobless benefits fell to 305 000, down from 367 000 at the same time last year, and the lowest level in more than six years. Consensus is that claims rose to 313 000 during the last week in September.
Friday's employment situation report is expected to show that US employers added 180 000 positions in September. Investors will also be looking to see if August's disappointing total of 169 000 jobs is revised upwards. The country's unemployment rate is expected to remain unchanged at 7.3%.
Central banks in Mauritius, Angola and Zambia will announce rates decision this week. All three banks are likely to maintain rates at current levels.
The Banco Nacional de Angola cut its benchmark interest rate by 25-basis points to 9.75% in August but, in the face of rising inflation risks, is unlikely to do so again this week.
Policymakers in Mauritius are likely to keep their policy rate – currently 4.65% – unchanged this week as well, despite mounting concerns that the island's economy is slowing. Statistics Mauritius cut its real gross domestic product (GDP) forecast for 2013 last week to 3.2% from 3.3% previously. Mauritius was recently ranked as Africa's most competitive economy, but has struggled as a result of its close ties with Europe.
Inflation in Zambia eased in August and September, but may escalate during the fourth quarter, largely as a result of expected food price inflation, wage increases, seasonal factors and high electricity prices. The Bank of Zambia's monetary policy committee is therefore unlikely to lower its benchmark rate from its current 9.75%, a record high.
Beyond these central bank decisions, Monday will bring a slew of economic data from across the continent. South Africa – the region's largest economy – will release last month's private sector credit growth and money supply figures. Ghana will release June money supply data. Kenya will report September's consumer inflation figures, August's money supply numbers, July's overseas remittances and second quarter GDP. Morocco will report second quarter GDP and August money supply. Uganda will issue last month's consumer price index report.
The European Central Bank (ECB)'s governing council – the central bank's policy-setting arm – will announce its latest monetary policy decisions on Wednesday.
Markets broadly expect banker Mario Draghi and his colleagues to leave interest rates unchanged at their historic lows of 0.5% following a recent wave of improved economic data. There is a chance that officials will announce an additional long-term refinancing operation (LTRO), but most analysts believe that the ECB will hold-off on action, despite signs of tightening credit in the region.
The ECB injected more than €1.0-trillion into the European banking system through two previous LTROs at the end of 2011 and at the beginning of 2012 in a bid to avert a credit crunch. As of last week, excess liquidity in the continent's financial system stood at €212-billion, the lowest level since December 2011.
Despite this, the majority of economists surveyed by Bloomberg last week believe that the ECB will not announce another LTRO on Wednesday. The ECB will conduct a review of bank balance sheets at the beginning of 2014 and many believe that officials will wait for those results before considering policy changes.
Beyond the ECB, markets will be watching the political situation in Italy over the coming days. All five ministers from Silvio Berlusconi's centre-right party announced their intention to resign from Italy's coalition government on Saturday, raising the possibility of new elections in Europe's third-largest economy. The government will face a confidence vote this week.
Italy's borrowing costs hit a three-month high at an auction of benchmark 10-year bonds on Friday amidst mounting uncertainty, but the country's economy minister expects markets will take the latest news in stride.
"I think the uncertainty connected to the government's instability has been to a large extent already factored in during the last few weeks," Italian economist Fabrizio Saccomanni told Italy's Il Sol 24 Ore newspaper on Sunday.
Surprisingly disappointing news from China opened Asia's economic week on Monday. The final HSBC manufacturing purchasing managers' index (PMI) edged up to 50.2 in September from 50.1 in August, significantly below last week's flash reading of 51.2. Any number above 50 indicates expansion, whereas readings below 50 signal contraction.
"The September HSBC China Manufacturing PMI edged up slightly from August. New orders remained flat from the previous month, while external demand improved," Hongbin Qu, chief China economist at HSBC, said.
"Manufacturers restocking process continued but remained relatively slow. Growth is bottoming out on Beijing's mini-stimulus. We expect continuous policy efforts to sustain the recovery."
Final readings for China's official PMI will follow from the China Federation of Logistics and Purchasing tomorrow. Consensus is that the index will rise to a reading of 51.5 from 51.
Also on Tuesday, policymakers at the Reserve Bank of Australia (RBA) announce their latest rates decision. Markets expect officials to leave the RBA's overnight rate unchanged at 2.5%, despite a rise in the Australian dollar and the country's unemployment rate since central banker's last meeting.
Most economists believe that the RBA will wait for updated inflation and unemployment readings before determining whether or not a change in policy is needed by year's end. August retail sales figures – scheduled for release today – will also give policymakers an indication of whether recently improving confidence is translating into consumption. Consensus is for a mild improvement.