In a now familiar pattern, global markets were pummelled last week by bad news from Europe. As a new financial week begins, investors are dreading more of the same. With several crucial debt sales on the docket, Europe will continue to dominate headlines. But jobs data in America, manufacturing numbers in China and growth figures here at home are also likely to attract attention in the week ahead.
Europe
Europe’s intractable debt crisis will continue to dominate headlines in the week ahead. With no solution yet in sight, global markets will be paying particular attention to developments in the troubled continent’s bond markets over the coming days.
This past week, government borrowing costs across the continent rose as bond yields increased in almost every eurozone country. Even Germany, long considered an investment safe haven, was able to sell only €3.644-billion of the €6-billion in 10-year bunds it attempted to auction this past Wednesday.
In the week ahead, debt sales will be closely monitored for falling demand and rising yields. On Monday, Belgium is expected to sell up to €2-billion in bonds as Italy attempts between €500-million and €750-million in sales. Italy will follow with a much larger second sale on Tuesday of between €5-billion and €8-billion in three-year, 10-year and 2020 bonds. And on Thursday, investors expect France to attempt to auction up to €4.5-billion in bonds as Spain attempts debt sales of €3-billion to €4-billion. Signs of trouble at any or all of these events could spook markets across the globe into further losing sessions.
Beyond developments in the continent’s bond markets, investors will be paying close attention to at least one key economic statistic this week. On Wednesday, officials will release the eurozone’s main measure of inflation, the harmonised index of consumer prices (HICP). Most analysts expect figures to show that inflation rose 3% year-over-year in November — the same as in October.
United States
American markets are eagerly anticipating several key data releases this week. Investors are hoping that relatively up-beat domestic numbers may help to offset the impact of increasingly grim news from Europe.
On Monday, government officials will release new home sales data for October. Economists consider new home sales to be an important barometer of economic momentum. When home sales rise, consumer spending tends to follow. Analysts are forecasting a slight uptick to 320 000 units sold from September’s 313 000 units.
On Tuesday, the Conference Board will release consumer confidence data for November. Analysts expect to see an increase in consumer confidence from a reading of 39.8 in October to 45.0 in November.
At mid-week, attention will shift to America’s labour market. On Wednesday, Automatic Data Processing (ADP) will release its private sector employment report. Economists consider this data release a fairly reliable predictor of a larger government jobs report which will follow on Friday. Analysts expect the report to show that, after adding 110 000 in October, American companies added 130 000 jobs in November.
On Thursday, analysts expect government figures to show that new claims for jobless benefits rose slightly to 395 000 filings in the week ended 26 November from 393 000 in the previous week. If the forecast holds, it would mark the third week in a row when new jobless benefit claims fell below the psychologically important 400 000 mark. Markets would likely interpret this as a welcoming sign that America’s labour market is moving in the right direction.
On Friday, the government will issue its employment situation report for November. This report is the most detailed and closely followed report on America’s labour conditions and a major market-moving event. Economists expect figures to show that America’s unemployment rate held steady at 9% in November, but that the economy added an additional 123 000 jobs in the month, an increase from the previous month’s 80 000 new jobs.
Asia
Closely followed statistical releases in Japan, China and Australia are the key events on Asia’s economic calendar this week.
On Wednesday, Japan will release monthly industrial production statistics. The median forecast among economists surveyed by Market News International is for a 1% rise in October, following a 3.3% decline in September.
Beyond the headline number, investors will be scrutinising the official statement accompanying the release. Many analysts believe that recent flooding in Thailand, a slowing global economy and a strong local currency — making Japanese exports less competitive overseas — will prompt Japan’s ministry of economy, trade and industry to lower its output forecasts for November and December.
On Thursday, attention will shift to China as HSBC releases full November results from its purchasing managers’ index (PMI), a survey of Chinese manufacturers. This past Wednesday, preliminary results slipped to a 32-month low, disappointing economists’ expectations by falling below the 50-point mark separating expansion from contraction.
A separate manufacturing measure from the Chinese government, based on a survey of larger companies, is also slated for release on Thursday. Economists and investors will be watching both releases closely for signs that the ongoing slowdown in global economic activity is starting to affect China’s massive manufacturing base.
Finally this week, also on Thursday, Australian authorities will release retail sales data for October. Australia’s retail sector has expanded for three straight months and analysts expect Thursday’s data to show a continued expansion of 0.4%, month-over-month. But a string of disappointing recent results and pessimistic comments from some of the nation’s largest retailers suggest that figures may disappoint.
South Africa
Tuesday morning’s scheduled release of gross domestic product (GDP) figures for the July to September quarter is the highlight of South Africa’s economic calendar this week. GDP releases are always closely watched, but this week’s numbers — coming at a time of extreme market uncertainty and risk aversion — will be particularly scrutinised.
The economy sent mixed signals during the third quarter. On the one hand, mining and manufacturing data releases suggested that production was still struggling in the period. But on the other, retail sales figures appeared surprisingly strong, suggesting that consumer demand — which accounts for a third of South Africa’s overall GDP — is holding up in the face of extremely difficult economic conditions.
On balance, economists expect GDP data to show that economic growth accelerated on a quarterly basis to 1.8% in the July to September quarter from 1.3% in the previous three months of the year. On an annual basis, GDP growth is expected to hold steady at 3%, year-over-year.
Last month, the national treasury cut its 2011 economic growth forecast to 3.1%, year-over-year, from an earlier 3.4% forecast. Government expects growth to remain at 3.4% in 2012, less than half the 7% growth rate officials have said is necessary to make a meaningful dent in the country’s 25% unemployment rate.
A higher than expected GDP number on Tuesday, making South Africa a more attractive destination for foreign investment, could provide support to stocks and to the rand. A general risk aversion among global investors and concerns about the country’s growth prospects pushed the rand to a two-and-a-half year low of R8.61 to the dollar this past week.
Lower than expected figures could provide support to local bond markets. Recent higher than expected inflation figures raised expectations for an interest rate rise in the near future, causing debt markets to weaken on Friday, pushing bond yields to multi-month highs.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the United States treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.