Weak manufacturing data from China pushed the world’s markets sharply lower on Friday, closing out the toughest quarter for global stocks since the depths of the 2008 recession.
Europe’s intractable debt situation continues to deteriorate and a months-long parade of grim economic data has raised fears of another global recession. Asian markets plummeted further this morning and investors expect more bad news as the week rolls on.
Europe
With Europe’s economic growth at a near standstill and the threat of cascading sovereign defaults still hanging over the continent, this week’s scheduled economic events look more likely to confirm than alter the continent’s economic malaise.
On Monday, European finance ministers will meet in Luxembourg. Markets are waiting for word on whether or not the European Union will release Greece’s next round of €8-billion in financial aid, but none is expected.
Investors are questioning Greek leaders’ resolve to honour strict austerity requirements imposed as a condition of aid in the face of intense domestic opposition. Markets put the probability of a Greek insolvency at greater than 90% and are concerned that a chaotic debt default could wreak havoc on Europe’s banking system, triggering another financial crisis.
On Wednesday, news is likely to focus on the release of gross domestic product (GDP) data for the UK and euro zone. Final data is expected to show that the UK’s economy grew at the anaemic rate of 0.2% in the second quarter, following only slightly better growth of 0.5% in the first. The euro zone’s performance is likely to look equally abysmal. Analysts expect figures to confirm 0.2% growth in the second quarter, down from 0.8% growth in the first three months of the year.
With that dismal backdrop, the European Central Bank (ECB) will meet on Thursday to consider interest rate changes. This is the last monthly meeting at which current ECB President Jean-Claude Trichet will preside before stepping down at the end of the month. Europe’s stalled economy and ongoing debt woes have placed policymakers under increased pressure to lower interest rates, but most analysts consider such a move unlikely before Trichet’s successor, Mario Draghi, assumes the ECB presidency in November.
The Bank of England will also meet on Thursday. Markets will be watching for a possible resumption of “quantitative easing” by the central bank, a policy designed to stimulate lending and investment in the UK’s stagnant economy. Most economists consider the chances of such an announcement slim at this week’s meeting, but do expect governors to vote unanimously to keep the benchmark rate unchanged at 0.5%.
United States
With few significant developments in Europe expected this week, American markets are likely to focus on a series of manufacturing and jobs data scheduled for release in the week ahead.
On Monday, the Institute for Supply Management (ISM) will release its monthly manufacturing index for September, a leading indicator of future industrial activity. The consensus forecast among economists is for a reading of 50.5, just above the score of 50.0 separating expansion from contraction.
The odds of a better than anticipated reading increased on Friday, however, when ISM manufacturing data released for the Chicago area – a region that somewhat mirrors the nation in its distribution of manufacturing and non-manufacturing activity – came in significantly higher than analysts’ had expected. A similar performance by national figures could provide some support to shaky U.S. markets on Monday.
More industrial data will follow on Tuesday when the Commerce Department reports data on factory orders received by manufacturers in August. This data shows economists how busy factories will be over the coming months as they work to fill orders. Analysts expect the data to show a 0.3% decline from July’s levels.
On Wednesday, attention will shift to America’s beleaguered jobs sector as ADP releases its national employment report. Economists view this report as a sort of preview of what the government’s official employment report, released two days later, is likely to show.
Analysts expect the report to show that the American economy added 90Â 000 private sector jobs in September, down slightly from the 91Â 000 added in August. A surprise in either direction is likely to move markets.
The jobs focus continues into Thursday as the government releases weekly jobless claims numbers. Last week’s figures were lower than economists had expected, but government officials cited difficulties in making seasonal adjustments to the data as a possible cause. This week’s release is expected to show that 410Â 000 people filed for new jobless benefits during the last week of September.
Finally, on Friday, the government will release labour market data for September. Economists expect the employment situation report to show that America’s economy added 65Â 000 jobs in the month just ended.
Roughly 45Â 000 of these jobs represent the return of previously striking telecommunications employees to the workplace, however. Meaning the true number of jobs added in September is likely closer to just 20 000, or about one-tenth the number of jobs needed to bring down the country’s 9.1% unemployment rate.
Asia
The principal news from Asia this week is that the world’s second largest economy is on holiday. China’s National Day occurred on Saturday, kicking-off one of the country’s two “Golden Weeks”, annual seven-day national holidays in which all markets and most businesses remain closed.
With China quiet, investors are likely to focus on central bank meetings in Australia and Japan. The Reserve Bank of Australia will announce its latest monetary policy decision on Tuesday. Economists expect the bank to hold rates steady at 4.75%, but will scrutinise the bank’s statement closely for hints at possible rate cuts later this year.
The Bank of Japan will follow with its rate announcement on Friday. Japanese interest rates are already in the record low band of 0.0 to 0.1%, so no change is expected. Economists and investors will be watching for any hints at action by central bankers to curb the Japanese yen’s strength against other currencies.
South Africa
South Africa will receive two closely followed pieces of economic data this week, purchasing managers’ index (PMI) data on Monday and new vehicle sales figures on Tuesday. Both releases will cover the month of September.
The Kagiso-Bureau for Economic Research purchasing managers’ index (PMI) is a key indicator of the direction in which the country’s manufacturing sector is headed. The PMI increased by 2.5 points to a reading of 46.7 in August, but remained below the 50 mark separating expansion from contraction for the second month in a row. With demand conditions deteriorating, analysts will be watching for signs of heightened pessimism in today’s release.
The National Association of Automobile Manufacturers of South Africa (Naamsa) new vehicle sales data is a “good indicator of overall economic activity”, says Sydney Soundy, managing executive of Absa vehicle and asset finance, “the motor industry is among the first to respond to changing conditions.” Analysts expect September’s sales figures to remain positive, year-over-year, but to show that the pace of growth is slowing.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the US Treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.