Economic week ahead: SA inflation update
South Africa's latest inflation data, and a rates decision from the Bank of Namibia are the big items on this week's local economic calendar. Further afield, markets will be on the lookout for forward-looking manufacturing indicators in China, Germany and the eurozone. Here is your guide to the economic week ahead.
The big item on South Africa's data calendar is Wednesday's consumer price index (CPI) report. South Africa's annual inflation rate rose to 5.4% in December, less than economists expected. Consensus is that consumer inflation in Africa's largest economy picked 0.5% on a monthly basis and 5.6% from a year earlier during the first month of 2014.
Also on Wednesday, officials at the Bank of Namibia (BON) will announce their latest rates decision. The big question on investors' minds is whether or not the bank's monetary policy committee (MPC) will follow their South African counterparts' lead and raise rates at this week's meeting.
Governor Gill Marcus and her colleagues at the South African Reserve Bank surprised markets by raising rates for the first time since 2008 at their January meeting. Their 50-basis point hike brought South Africa's repo rate to 5.5%, the same level of the BON's benchmark rate.
Officials at the BON prefer to keep Namibia's repo rate slightly higher than South Africa to attract additional capital flows. For this reason, some economists believe they will raise interest rates by between 25- and 50-basis points at Wednesday's meeting.
Elsewhere on the continent, Nigeria – Africa's number two economy – is expected to report January's M2 money supply and private sector credit extension figures by Wednesday. December M3 money supply figures are also expected from Tanzania over the coming days.
Botswana, Zimbabwe and Morocco will join South African in updating on consumer inflation. Ghana will update on prices at the factory gate on Tuesday, the same day Egypt reports December's trade figures.
American markets will be closed on Monday in observance of the country's Presidents' Day holiday. Housing market data will dominate the shortened trading week to follow.
On Tuesday, the National Association of Home Builders is expected to report that the organisation's housing market index – a weighted average of present sales of new homes, sales of new homes expected in the next six months and traffic of prospective buyers – is expected to remain unchanged from January.
On Wednesday, January's housing starts data is likely to show that the pace of new construction fell to a seasonally adjusted annualised rate of 950 000 units last month from 999 000 in December. The number of permits for new construction – an indicator of future activity – probably fell to 975 000 from 986 000 over the same period.
On Friday, existing home sales data is expected to show that the pace of sales fell to 4.65-million units in January from 4.87-million units in December. The outlook for the market is not strong. A shortage of supply and a lack of first-time buyers are both holding back sales.
Beyond these housing releases, economists will be on the lookout for producer price index (PPI) data on Wednesday and CPI data on Thursday. Beginning with this week's PPI report, US officials will calculate producer inflation under a different methodology. The new method will include intermediate and final demand classifications that are dominated by services, weighing the traditional core PPI – which includes food and energy – less than previously.
On Tuesday, Germany's Centre for European Economic Research will release its closely followed economic sentiment index. This gauge of investor and analyst expectations, designed to predict economic developments six-months out, unexpectedly fell to 61.7 in January from a seven-year high of 62 in December. Consensus is that the index will rebound this week.
On Wednesday, the Bank of England (BOE) will release the minutes of the central bank's most recent MPC meeting. Policymakers revised their forward policy guidance last week to say that –? rather than focusing exclusively on the 7% or lower unemployment rate they previously targeted – they will now focus on 18-separate measures of spare capacity in the British economy before raising interest rates. Analysts will want to see how much support, or dissent, preceded the announcement within the BOE's policy setting group.
On Thursday, a slew of purchasing managers' indices (PMIs), covering both the manufacturing and services sectors, will be released. Economists and investors will be scrutinising the reports closely for signs of continued recovery in the eurozone.
Flash manufacturing and services PMIs for Germany and France – the continent's two largest economies – are expected to edge further into positive territory, albeit only slightly. Services, manufacturing and composite PMI readings for the eurozone as a whole are also likely to signal continued expansion, bringing more welcome news for the long-troubled continent following this month's better-than-expected fourth quarter growth figures.
Japan – the world's number three economy – released fourth quarter growth figures on Monday. Preliminary figures showed that the country's gross domestic product (GDP) expanded by 0.3% in the three months to December, less than the 0.7% economists had expected. The fourth quarter figure translates into an annualised expansion of 1%, far less than economists' median forecast for 2.8% growth.
The weak GDP report will undoubtedly be a big topic of discussion at the Bank of Japan, which will conclude a two-day policy meeting on Tuesday. The underwhelming results are likely to put additional pressure on policymakers to add to their already aggressive stimulus measures over the coming months, though no action is likely this week.
On Thursday, Japan's ministry of finance will release last month's trade figures. Economists surveyed by Market News International expect Japan to report a record trade deficit of ¥2.477-trillion, largely the result of a combination of strong demand for imports – particularly durable goods – ahead of a planned April consumption tax hike and reduced demand for the country's exports at the beginning of the year. If the forecast proves accurate, January will mark Japan's 19th consecutive monthly trade gap.
Elsewhere in the region, Thursday will also bring flash February results for the Markit/HSBC China manufacturing PMI. Last month's final results showed that China's factory activity contracted for the first time in six-months in January.
Economists are expecting another reading below the 50-mark separating expansion from contraction this month, but will be cautious about reading too much into the report. February's figures will include China's Lunar New Year period, making the number less reliable than usual.