The last week of the year is typically economically uneventful. Scheduled data releases are usually sparse and, with elected officials around the world away from their offices, political shocks are less likely. This year, with the exception of a potential credit downgrade to France, the story is largely the same. But there are still a few scheduled events in the week ahead likely to generate headlines. Here is your guide.
Europe
Continental markets are closed on Monday. British markets on are on holiday on Tuesday too. When trading resumes in an otherwise quiet week, investors are likely to focus on a possible French credit downgrade and details of a new government’s budget in Spain.
Rumours have been circulating widely in the financial press that a downgrade of France’s sovereign credit rating is imminent. The top rating of Europe’s second largest economy is under threat from all three major ratings agencies.
Moody’s has said that it will review its ratings of all European Union nations in the early months of the new year. Fitch recently cut France’s economic outlook to negative and, earlier this month, Standard & Poor’s placed France on credit watch — a signal to investors that the nation’s AAA rating is at risk.
A French downgrade could have major repercussions for the region as a whole. France is one of 17 contributors to the joint rescue fund established by European governments to aid deeply indebted nations, the European Financial Stability Facility (EFSF). Fitch ratings recently announced that the EFSF could lose its top rating if France were downgraded. This would raise borrowing costs for the fund, thereby reducing its firepower.
In order to ensure that the €440-billion EFSF carries a AAA rating, Europe’s governments have provided guarantees totalling €726-billion, 165% of the fund’s value. With a combined contribution of €451-billion, the six European governments with AAA ratings account for the lion’s share of these guarantees. France alone accounts for €158.5-billion in guarantees.
On Friday, Spain will take centre stage. Mariano Rajoy — the country’s new Prime Minister — is expected to unveil a package of measures designed to tackle the eurozone’s third largest budget deficit. Rajoy has pledged to reduce Spain’s deficit from an expected 6.5% of gross domestic product (GDP) in 2011 to 4.4% in 2012.
United States
Consumer confidence and housing data will greet investors when American markets reopen from their holiday break on Tuesday. Later in the week, jobless claims figures and an important regional manufacturing barometer will likely dominate business headlines.
On Tuesday, the Conference Board will release results from its monthly survey of consumers. Most economists expect that a stabilising housing and employment picture will lead consumer confidence to a five-month high.
Also on Tuesday, markets will be watching for the latest numbers from the Case-Shiller housing price index. This index, named after the two economists who created it, tracks the monthly changes in the value of residential property in 20 metropolitan regions across the US. December’s report covers data from October.
Analysts expect to see a continuing decline in property values but at a slowing pace. The median forecast among economists surveyed by the financial news and data provider Bloomberg is that property values declined by 3.2%, year-on-year, in October. If this forecast proves accurate, it would mark the smallest annual decline in values since January.
On Thursday, attention will shift to data showing the number of new claims for jobless benefits filed during the previous week. Last week, new filings fell 12 000 more than expected to 364 000, their lowest level since 2008. Analysts expect to see a slight uptick in this week’s release but for the overall downward trend to continue.
Finally, on Friday, economists and investors will turn their attention to the Institute of Supply Management’s release of December purchasing managers’ index (PMI) data for the Chicago region.
Many analysts, believing the Chicago area to be similar to the US as a whole in its mix of businesses, use the Chicago PMI as a proxy for national data. Analysts expect to see a slight drop in December’s reading to 62.0% from 62.6% last month.
Asia
Thin trading volumes are expected throughout Asia this week. Markets are closed on Monday in Singapore, Malaysia, Indonesia and Sri Lanka and both Monday and Tuesday in Hong Kong, Australia and New Zealand. Philippine and South Korean exchanges are closed on Friday. Japanese and Chinese markets are open all week.
With few economic headlines expected elsewhere in the region, a slew of Japanese data releases will likely dominate headlines in the week ahead. On Tuesday, officials will release consumer price index (CPI), industrial production, retail sales and household spending data along with the country’s unemployment rate. Collectively, the data is expected to paint a picture of an export-oriented economy struggling in the face of slowing global demand.
Economists surveyed by Market News International expect November’s CPI data to show a 0.2% annual decline. This would mark the second consecutive monthly year-on-year fall in consumer prices and the largest drop in prices since June.
November’s industrial production statistics are expected to record their first fall in two months. Japan’s ministry of economy, trade and industry expects data to show a 0.1% decline. But independent analysts are even more pessimistic, expecting a 0.8% drop in output.
Growth in Japan’s consumer sector is also likely to have slowed in November. Annual retail sales growth is expected to have moderated from 1.9% growth in October to 0.9% in November. Analysts will also be watching to see if household spending, which has fallen for eight consecutive months since the March earthquake and tsunami, continues its downward trend.
Finally, Japan’s unemployment rate is expected to remain high by historical standards. The nation’s unemployment rate unexpectedly increased to 4.5% in October from 4.1% in September.
South Africa
The Johannesburg Stock Exchange (JSE) is only open for trade on Wednesday, Thursday and half of Friday. Despite the shortened week, investors will have plenty of information to mull over in the last two trading days of the year.
On Thursday, the South African Revenue Service (SARS) will release preliminary trade data for November. A sharp fall-off in exports and an uptick in imports caused South Africa’s trade deficit to balloon to R9.6-billion in October, far exceeding consensus forecasts for a R2.5-billion deficit.
Economists expect to see some improvement in November’s figures but with demand continuing to slow in Europe – South Africa’s largest trading partner — a sizeable gap is still widely forecast.
On Friday, the South African Reserve Bank will release private sector credit extension (PSCE) information for November. Last month’s release showed the annual rate of growth in PSCE ticking up slightly from 5.42% in September to 5.52% in October. Most economists expect to see a further moderate increase in the rate of growth in November’s numbers, to around 6% year-on-year.
Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is CEO of African Foresight Network, a former divisional director at the US treasury department’s office of the comptroller of the currency and a former policy analyst at the Federal Reserve Bank of Boston.