Last week, Europe’s intractable debt crisis looked likely to spiral beyond the control of the continent’s dithering politicians. As this week begins, markets across the world are pinning their hopes on newly installed “technocratic” governments in Italy and Greece. Economists and investors will be watching their initial moves closely in the week ahead.
Europe
Markets are eagerly anticipating data on European economic growth scheduled for release on Tuesday. Analysts expect that the eurozone’s gross domestic product (GDP) likely grew at a mere 0.3% rate in the third quarter, firmly in the dangerous realm of “stall speed” many economists fear precedes recession.
Europe’s economy is being pummelled by the continent’s ongoing debt crisis, a lack of investor and consumer confidence and drag created by austerity measures in debt-laden nations. Most economists expect that a broad recession is now all but inevitable for the region. Some believe that the eurozone is already in recession, while others predict that a broad contraction will not take hold until the first quarter of next year.
The depth and duration of the continent’s economic malaise depends largely on European leaders’ ability to control the region’s debt and financial crises. This past week, events appeared to be spiralling out of their control as yields on 10-year Italian bonds breached the psychologically important 7% barrier. An intervention by the European Central Bank, swift action by the Italian government to pass austerity measures and the resignation of controversial prime minister Silvio Berlusconi brought yields down, but the crisis is far from over.
In the week ahead, economists and investors will be keeping a close eye out for further signs of stress in the bond market and for political developments in Rome. On Sunday, President Giorgio Napolitano asked former European commissioner and economist Mario Monti to form a new technocratic government.
Italy’s debt is expected to reach €1.9-trillion by year’s end. Mr Monti’s new government will be tasked with passing the painful economic reforms deemed necessary by markets to reduce public debt levels from their current 120% of GDP and set the country on a sustainable growth path.
United States
Key data releases, corporate earnings and political developments in the nation’s capital are likely to dominate America’s economic headlines in the week ahead.
Markets will be watching for two inflation measures this week, producer price index (PPI) data on Tuesday and consumer price index (CPI) figures on Wednesday. Economists expect October’s PPI data to show a 0.2% decline in input prices, month-over-month, following a 0.8% increase in September. Analysts expect to see no change in CPI figures, month-over-month.
Elsewhere on the data calendar, Tuesday will see the release of retail sales figures for October. Analysts expect data to show a modest 0.2% increase in sales, month-over-month, following a more robust 1.1% increase in September. A greater than expected uptick in sales would bolster optimism for the all-important holiday shopping season.
On Wednesday, attention will shift to the US manufacturing sector as the government releases October’s industrial production figures. Economists expect the release to show an increase in overall production of 0.4%, month-over-month, and an increase in the sector’s capacity utilisation rate from 77.4% in September to 77.6% in October.
On Thursday, data on housing starts (commencement of new construction) and weekly jobless claims will dominate headlines. Housing starts are expected to decline from 658 000 units in September to 605 000 units in October. But the number of construction permits issued in the month, signalling future construction levels, is expected to tick up. Economists expect initial jobless claims filed in the week ended November 12 to total 395 000, an increase of 5 000 from the previous week.
On the corporate earnings calendar, computer maker Dell and retail giant WalMart will report third quarter results in the week ahead. Recent corporate earnings reports have provided investors with a ray of light in an otherwise bleak economic landscape. As of last week, roughly 70% of the 454 companies comprising the Standard & Poor’s 500 Index that have reported third quarter results have outperformed analysts’ expectations. Similarly positive news from Dell and WalMart could boost American markets in the week ahead.
Finally, in the background this week, markets will be watching for signs of progress from a legislative “super committee” tasked with recommending $1.2-trillion in budget cuts for the world’s largest economy. The group is set to release recommendations on November 23, but many economists and political analysts fear a repeat of the deadlock between Republicans and Democrats which resulted in a first-ever downgrade of America’s credit rating this past August. As the deadline approaches, markets are likely to get increasingly jittery.
Asia
In an otherwise light economic week for the region, Asia-watchers are likely to focus their attention on Japan as the nation releases gross domestic product (GDP) figures, an interest rates decision and key financial sector earnings.
On Monday, Japanese officials reported preliminary GDP figures for the July to September quarter. Japan’s economy was devastated earlier this year by a massive tsunami and earthquake, but rebounded sharply in the third quarter. This morning’s data showed that Japan’s GDP grew at an annualised rate of 6.0% in the third quarter after contracting in the first half of the year.
On Tuesday, focus will shift to the Bank of Japan, the nation’s central bank, as it announces its latest interest rates decision. Policymakers have hinted that they will keep the country’s policy interest rate target at between 0 and 0.1% in the near-term. Investors will pay close attention to the bank’s statement on Japan’s economic outlook.
Finally, three of the country’s largest financial services groups will report results in the week ahead. Investors will be watching to see how Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group have performed during the extremely unsettled third quarter of the year. Although analysts’ expectations are muted, surprisingly bad results could negatively affect bank shares throughout the region.
South Africa
Beyond developments overseas, South African markets are likely to focus on a slew of domestic data releases in the week ahead.
On Wednesday, the Bureau for Economic Research will release consumer confidence index (CCI) data for the fourth quarter. Consumer confidence is an important determinant of consumer spending — itself a key driver of economic growth — so economists and investors watch this data closely. Consumer sentiment plunged to a two-year low in the previous quarter.
Also on Tuesday, Stats South Africa will release September’s retail trade figures. Economists expect data to show an increase in sales of 6.4%, year-over-year, following a revised 8.2% uptick in August. Economists expect to see 0.5% growth, month-over-month.
Wholesale and motor trade data for September will follow from Stats South Africa on Thursday, along with building statistics.
- 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.