Global stock markets appear unlikely to maintain last week’s rally, as concerns about Greek debt return to the fore. In a major disappointment to investors, European finance chiefs wrapped up two days of meetings on Saturday without producing a plan to end Europe’s ongoing crisis. With more volatility expected, here is a guide to the economic events likely to make news in the week ahead.
Europe
Europe’s ongoing sovereign debt crisis will continue to dominate this week’s headlines. Concern continues to centre around the possibility of a Greek debt default and the potential consequences of such an event on Europe’s banks.
A series of statements by European leaders, pledges by central banks to provide US-dollar-based funding to financial institutions, and reports that China was considering extending financial support to the troubled continent temporarily alleviated investors’ fears last week, but a permanent solution to the continent’s debt woes remains elusive.
This past Friday and Saturday, European finance ministers, joined by US Treasury Secretary Timothy Geithner, held talks on Europe’s debt crisis. No plan for rescuing Greece or assisting Europe’s pressured banking sector emerged from the meeting.
On Sunday, Greek Prime Minister George Papandreou, chaired a crisis meeting of his Cabinet to discuss the situation. Following the meeting, the government pledged to undertake the steps necessary to prevent default, but failed to announce new austerity measures.
With the International Monetary Fund and World Bank holding annual meetings in Washington this week, analysts will be following the speeches and comments of global financial leaders on the European situation closely. Expect reports throughout the week.
One particularly interesting event will occur on Thursday, when finance ministers and central bank governors from the leading emerging markets economies of Brazil, Russia, Indian, China and South Africa — the “Brics” nations — meet. In a symbolical shift of economic power from the developed world to these emerging economies, Brics policymakers will debate providing a financial aid package to Europe.
United States
Presidential plans to reduce the country’s deficit, a two-day meeting of the Federal Reserve and data releases covering housing and jobs markets will dominate economic news in the week ahead.
On Monday, President Barack Obama will present his debt-reduction plan to a new legislative “supercommittee” charged with reducing the US deficit by at least $1.5-trillion. Analysts will likely focus on the overall size of Obama’s plan, its mix of spending cuts versus tax rises and reactions from Congressional republicans.
On Tuesday, the US Census Bureau will release data on new housing permits and construction starts. An increase in these two indicators signals confidence in the economy, while a decrease indicates cautiousness among builders and buyers. The consensus forecast among economists surveyed by Bloomberg is for new housing permits to show a decrease from 597Â 000 in July to 590Â 000 in August. Housing starts are also expected to show a monthly decline from 604Â 000 to 592Â 000 units.
More news on the US’s troubled housing market will follow on Wednesday when the National Association of Realtors releases existing home sales data. Following a 0.6% drop in June, July’s data showed an increase in sales of 3.5% to 4.67-million homes sold. Economists expect August’s data to show a further sales increase of approximately 80Â 000 units.
On Wednesday, attention will shift to the Federal Reserve as the central bank’s policy setting body wraps-up an eagerly anticipated two-day meeting. For weeks, a steady stream of dreary data has heightened expectations that policymakers will announce new plans to stimulate economic growth.
A poll conducted earlier this month by Reuters found that 80% of those surveyed on Wall Street expect the Fed to announce plans based on a 1961 policy known as “Operation Twist”, a financial manoeuvre designed to lower long-term borrowing costs by readjusting the Fed’s $1.7-trillion portfolio of government bonds.
By selling short-term bonds while simultaneously buying long-term bonds, the Fed could lower longer-term interest rates while leaving short-term rates largely unchanged. The idea underlying such a programme is that lower long-term interest rates drive increased business investment and housing demand, both badly needed for the country’s recovery.
Finally, on Thursday, the government will release new weekly jobless claims figures. Analysts expect to see a slight decrease of 8Â 000 filings after last week’s data showed an increase of 11Â 000 to an unexpectedly high 428Â 000 claims.
Asia
Two data releases in Japan and China are likely to attract investor attention in an otherwise light week on Asia’s economic calendar.
On Wednesday, Japan will release preliminary trade data for August. Japan’s trade surplus shrank by 86%, year-on-year, in July as exports declined by 2.3% and imports rose by 13.6%. Analysts will watch this month’s release closely for indications of how exports, vitally important to this trade-focused nation, are performing given a slowing global economy.
On Thursday, attention will shift to China as HSBC, a global bank, releases purchasing managers’ index (PMI) survey data for September. This data provides information on manufacturing purchasing managers’ economic expectations. It is closely watched by economists as one of the earliest monthly data releases on China’s economic calendar. PMI data showed a contraction of Chinese manufacturing in July and August. Analysts will be watching to see if this downward trend continues into September.
South Africa
Inflation data for August, retail sales data for July and a meeting of the South African Reserve Bank’s monetary policy committee (MPC) will dominate the economic news from South Africa this week.
Most economists expect the Reserve Bank to leave rates, already at record low levels, unchanged at this week’s meeting. “The MPC will probably remain cautious,” Nedbank’s economics department wrote last week, “opting to keep rates at current levels for longer given that inflation is heading for 6% and wage agreements are settling well above inflation”.
The latest inflation figures will become available on Wednesday morning when StatsSA releases consumer price index (CPI) data for August. The CPI rose 5.3% in July and economists expect to see a further increase to 5.8% in August’s data, close to the 6% upper limit of SARB’s inflation target.
Later in the day, StatsSA will release retail sales data for July. Analysts are not optimistic. Retail sales figures fell below expectations in the last two months and data released last week showed that household consumption expenditure, which has helped to keep South Africa’s economy moving, slowed to 3.8% growth, year-over-year, in the April to June quarter of 2011 from a 5.2% growth rate in the January to March quarter.