The next three weeks are likely to determine the fate of global markets for the remainder of the year. Europe’s leaders have pledged to announce a comprehensive solution to the continent’s debt crisis by the first week of November. A key meeting at the weekend is expected to reveal Europe’s plans. Between now and then, speculation about the details that may emerge and key data releases in the United States and China will dominate the week’s economic news.
Europe
Hopes that European leaders may finally bring the continent’s debt and banking crises under control led markets broadly higher this past week. In the week ahead, investors will be watching for indications of what a potentially comprehensive plan to resolve Europe’s two-year old predicament may ultimately entail.
Finance ministers and central bankers from the Group of 20 (G20), representing the world’s largest economies, wrapped up two days of meetings on Saturday. At the conclusion of the event, policymakers urged euro zone leaders to act “decisively to restore confidence, financial stability and growth.”
European Union leaders are broadly anticipated to so at a summit this coming weekend. World leaders and markets expect the Europeans to finalise a proposal to be discussed at a meeting of G20 leaders scheduled for 3 and 4 November in Cannes, France.
In the lead up to the summit, reports suggest that officials appear to be coalescing around a core set of proposals to recapitalise Europe’s banks, renegotiate private sector losses on Greek bond holdings upwards to as high as 60% and expand the size of bailout funds to protect Spain and Italy, the euro zone’s largest debt-laden countries, from default. Economists and investors will be keeping a keen eye out for evolving details as the week progresses.
Beyond the debt crisis, two data releases in Germany are also likely to garner significant attention for investors. September’s results from the ZEW survey will be released on Tuesday followed by the Ifo business climate survey on Friday. Both surveys, measures of business confidence in Europe’s largest economy, are expected to show a further deterioration in business sentiment.
United States
Several important data releases and a slew of corporate earnings reports are the highlights on America’s economic calendar this week.
Better than expected corporate earnings reports, coupled with optimism on Europe’s debt situation, pushed American stock markets broadly higher last week. This week, investors will continue to scrutinise the financials from large multinational corporations for clues to how demand is holding up in an uncertain world.
Attention is likely to focus primarily on the banking sector as Citigroup and Wells Fargo release quarterly results on Monday followed by Bank of America and Goldman Sachs on Tuesday and Morgan Stanley on Wednesday. Apple, the world’s most valuable corporation in terms of market capitalisation, will also report results on Tuesday in an event likely to attract widespread media attention.
On the data front, the Federal Reserve will release September’s industrial production data on Monday. The consensus forecast among analysts surveyed by Bloomberg is for industrial production to rise 0.2% in September, the same low rate of growth recorded in August. A separate survey conducted by Dow Jones Newswires expects industrial production to slow to 0.1% growth for the month.
Two important measures of inflation will follow on Tuesday and Wednesday as the Commerce Department releases producer price index (PPI) and consumer price index (CPI) data for September. Economists expect Tuesday’s release to show a 0.3% rise in producer prices in September, up from zero in August. Economists expect a 0.3% increase in consumer prices to follow in Wednesday’s CPI data, down slightly from August’s 0.4% reading.
The most closely followed report on America’s housing sector is also scheduled for release on Wednesday. Economists expect housing starts – defined as commencement of construction on new homes – to have risen to 590 000 units in September, up from 571 000 units in August.
Finally, on Thursday, investors will be watching for America’s weekly new jobless claims figures. Filings fell slightly last week to 404 000. Economists expect this Thursday’s release to show claims of 400 000 for the week ended 15 October, indicating continued weakness in America’s troubled labour market.
Asia
Core economic data from China will likely dominate Asian economic news in the week ahead.
On Tuesday, China will release gross domestic product (GDP) data for the July to September quarter. Economists expect figures to show that the rate of overall economic growth in the world’s second largest economy slowed slightly from 9.5% in the second quarter of 2011 to 9.2% in the third.
A drop in growth of this magnitude would not be poorly received by markets. Data released last week showed that China’s inflation remained above 6% for the fourth straight month in September, well over the country’s 4% official target.
Chinese authorities, concerned with these price rises, have undertaken a number of recent policy actions to moderate the country’s economic growth rate in a controlled manner, facilitating what economists refer to as a “soft landing”. A deeper than anticipated drop in GDP would raise fears that the country may be headed for a “hard landing”, a rapid shift to slow economic growth caused by government attempts to control inflation.
With anaemic growth rates already plaguing the United States and Europe, a significant slowdown in China’s expansion would have unwelcome consequences for global growth prospects. So Tuesday’s release will be closely watched by economists and investors throughout the world.
South Africa
Wednesday’s release of consumer price index (CPI) data for September is the major event on South Africa’s economic calendar in the week ahead. CPI is the main measure of consumer price rises in South Africa. Targeted by the Reserve Bank in the range of 3% to 6%, this figure is also a key determinant of interest rates.
Inflation remained flat in August at 5.3% year-over-year, lower than market expectations of a 5.5% increase for the month. Prices on most categories of goods and services either held steady or fell slightly.
Despite last month’s unexpectedly good news, most forecasters expect this week’s release to show that price rises resumed their upward trajectory in September. Producer price inflation (PPI), some of which is passed through to consumers, rose by 9.6% year-over-year in August and a weaker rand has driven the cost of imported input prices higher.
The Reserve Bank currently forecasts that, “inflation is still expected to breach marginally the upper end of the target range in 2011/Q4 and to peak in 2012/Q1 at around 6.2 percent.” Under “normal” circumstances, price rises at this pace would typically precipitate a rise in interest rates. But with a host of recent economic data indicating a slowdown in both the South African and wider global economies, most analysts expect the Reserve Bank to keep rates at historically low levels well into next year.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the U.S. Treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.