Economic week ahead: Rates decisions in SA and Nigeria
Nigeria and South Africa will announce their interest rates this week. Will Gill Marcus need to raise the repo rate to keep the rand strong?
The African Development Bank will hold its annual meeting in Kigali this week and release the 2014 African Economic Outlook on Monday. Central bankers in South Africa and Nigeria – the continent’s two largest economies – will announce their latest rates decisions on Tuesday and Thursday, respectively.
Overseas, economists and investors will pay close attention to purchasing managers’ index (PMI) reports in Europe and China, a central bank decision in Japan and housing reports from the United States. Here is your guide.
Central bankers in Africa’s two largest economies will meet to consider interest rates this week. Policymakers at the Central Bank of Nigeria will announce their decisions on Tuesday. Officials at the South African Reserve Bank will follow with an announcement on Thursday.
Nigeria’s central bank kept interest rates on hold in March, but hiked the bank’s cash reserves requirement on private sector deposits by 300-basis points to tighten naira liquidity. Analysts expect no change to the bank’s monetary policy rate, cash reserves requirement or liquidity ratio at this month’s meeting either.
In South Africa, a survey conducted last week by Reuters showed that 17 of the 28-economists polled expect Reserve Bank Governor Gill Marcus and her colleagues to leave the repo rate unchanged at 5.5% at the conclusion of their three-day meeting. Four expect a 25-basis point hike and seven foresee a rise to 6%.
Policymakers raised the repo rate by 50-basis points in January to support a weakening rand, but the currency has strengthened significantly since. As a result, many economists feel that officials will put plans to raise rates on hold this month in a bid to boost growth.
The call will not be easier, however. Inflation has risen since March and the Reserve Bank expects it to average 6.3% this year, peaking at 6.6% in the fourth quarter. Officials target an inflation rate between 3% and 6%. So even if the MPC does hold off on tightening now, one or more rates rises by year’s end remains highly likely.
Officials from the United States and Europe will begin a fifth round of negotiations on a proposed Trans-Atlantic Trade and Investment Partnership on Monday. If ultimately successful, the partnership would represent the biggest trade pact in history, linking areas with over $30-trillion in annual output.
On Wednesday, the US Energy Information Administration will release its weekly oil supply report and the Federal Reserve will release minutes from the central bank’s April policy meeting. Policymakers announced a fourth consecutive reduction in bond buying last month and, in subsequent testimony before Congress, Fed Chair Janet Yellen said that officials will probably end their asset purchase programme altogether later this year if America’s labour market continues to strengthen. Economists and investors will scour the minutes for further policy clues.
On Thursday, the National Association of Realtors’ existing home sales report is likely to show that sales climbed to their highest level of the year last month. Consensus is that the pace of sales rose to a seasonally-adjusted annualised rate of $4.69-million units in April from $4.59-million in March.
On Friday, the second of the week’s two big housing-related releases – the US Commerce Department’s new homes sales data – will probably show improvement as well. Analysts expect the report to show that new home purchases rose for the first time in three months in April to a seasonally adjusted annualised rate of 420 000, up from 384 000 in March.
With Ukraine’s troubles continuing, Monday’s monthly press conference by Nato’s secretary general, Anders Fogh Rasmussen, is likely to attract more attention than usual.
Clashes between Ukraine’s government and Russian-backed separatists in the country’s eastern regions remain on-going as the country prepares for presidential elections on May 25. In an interview with the BBC on Sunday, United Nations Assistant Secretary General for Human Rights, Ivan Simonovic, said he is afraid that Ukraine is approaching a “point of no return if there is no adequate and urgent action taken.”
In the run-up to Sunday’s elections in Ukraine, two other votes will take centre stage. The Netherlands and United Kingdom will hold elections for the European Parliament on Thursday. The rest of the 26-nations in the European Union will follow over the next few days.
Groups opposed to the European Union are expected to do well in both countries, a trend likely to continue throughout the whole of the regional bloc. Analysts suspect that around a quarter of the 751-seats up for grabs may go to “euro sceptics”.
Thursday will see the release of the euro zone’s composite, manufacturing, and services purchasing managers’ index (PMI) reports. After disappointing first quarter growth figures across Europe, these forward-looking indicators will be scrutinised for clues to second quarter performance. All three are expected to remain largely unchanged from last month.
Trade ministers from the United States, Australia, Japan and nine other Pacific Rim nations – excluding China – will gather in Singapore on Monday and Tuesday to discuss the Trans-Pacific Partnership, a free trade agreement. If successful, the partnership would represent the second-biggest trade pact in history, linking areas with around $28-trillion in annual output.
On Tuesday, Chinese leader Xi Jinping will host the leaders of Russia, Iran and other Asian and Middle Eastern countries at a Conference on Interaction and Confidence-Building Measures in Shanghai. President Xi Jinping and Russian President Vladimir Putin are also expected to close a natural gas deal between their two countries.
On Wednesday, attention will shift to Japan where the Bank of Japan will announce its latest policy decisions and the ministry of finance will release April’s trade figures. Economists surveyed by Market News International expect the data to show that Japan posted its 22nd straight trade deficit last month, but that the gap narrowed to ¥630-billion last month from ¥1.45-trillion in March.
On Thursday, China will be back in the spotlight as HSBC and Markit report the flash May reading of their China manufacturing purchasing managers’ index. This closely-followed economic gauge missed expectations in April and is widely expected to continue to signal contraction this month.
Commenting on last month’s report, HSBC’s chief economist for China – Hongbin Qu – pointed out that both the new export orders and employment sub-indices contracted. “These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum.”