The economic week ahead: Davos, data and rates

So far, 2012 has been a much better year for markets than its predecessor. As global leaders congregate for the World Economic Forum in Davos this week, economists and investors elsewhere in the world will be digesting a host of economic reports for signs that recent rallies may continue. Here is your guide to the central bank gatherings, data releases and other events likely to generate headlines in the week ahead.

United States
A gathering of the nation’s central bank and a multitude of key economic and corporate releases will dominate America’s economic news this week.

The Federal Reserve’s policy arm—the federal open markets committee—will begin a two-day meeting on Tuesday. The consensus among economists is that policymakers will hold steady on interest rates—already near zero—and not announce any further measures to stimulate the economy following this week’s discussion.

The meeting’s most significant news will likely come on Wednesday when policymakers release their forecast of interest rates, a first for America’s central bank. Templates for the official forecasts were released on Friday.

Elsewhere on the economic calendar, the latter part of the week is packed with data releases. Thursday will bring durable goods orders, jobless claims and new home sales data. Friday will see gross domestic product (GDP) figures and consumer sentiment readings released.

Durable goods orders—a measure of how busy factories will be in the months ahead—are expected to have risen 2.2% in December following a 3.8% surge in November. Weekly initial jobless claims numbers are expected to have risen to 370 000 last week after falling to 352 000 in the week ended January 14. New home sales are expected to have risen to an annual rate of 320 000 in December from 315 000 in November.

Friday’s GDP data is forecast to show that the world’s largest economy grew at the significantly improved rate of 3.1% in the October to December quarter of 2011 versus 1.8% in the previous three months of the year. January’s consumer sentiment reading is expected to remain flat.

Finally, 124 companies on the Standard & Poor’s 500 Index will report earnings this week. Big names on the list include Apple, McDonald’s, Yahoo, Proctor & Gamble and a slew of banks. Investors will be paying particular attention to what companies have to say about the European situation and the global economy in the months ahead.

Europe
The World Economic Forum is likely to hog the spotlight in Europe this week. The world’s most influential business, governmental, religious and civil society leaders—including South Africa’s President Jacob Zuma and Archbishop Desmond Tutu—will join an assortment of academics, journalists and celebrities in Davos, Switzerland beginning on Wednesday.

The gathering is expected to examine a number of pressing global issues but the long-running European debt crisis is unlikely to veer far from centre stage. German leader Angela Merkel will deliver the forum’s opening remarks and other key players in the eurozone are expected to attend, including European Central Bank president Mario Draghi and International Monetary Fund chief Christine Lagarde.

Beyond Europe’s troubles, delegates are likely to focus on rising tensions between Iran and the West over that country’s nuclear programme and recent threats to disrupt global oil supplies.

Speculation over the chances of a continued slowdown in China’s economy and the prospects for global growth in the year ahead are also likely to dominate discussions. Food security and the future of capitalism are among other planned sessions on the event’s schedule.

Davos is likely to overshadow most other European news this week, but a few other events will likely avoid the gathering’s shadow. Most notably, on Wednesday, British government officials will release final growth figures for 2011, Germany’s Ifo Institute will release its latest business sentiment index and Italy will release retail sales figures.

On Friday, Europe’s central bank will release data on the region’s money supply growth and the Swiss Institute for Business Cycle Research (KOF) will release the Swiss leading indicator, a composite index of business surveys.

Asia
With Chinese markets closed this week for the lunar new year holidays, Asian economic news is likely to focus on interest rate decisions in Japan, India and Thailand and inflation data in Australia and Japan.

On Tuesday, the central banks of India and Japan are expected to announce their latest rates decisions. India’s policymakers held rates steady in December and are broadly expected to do so again at this week’s meeting. Analysts anticipate that Japan will do the same. The Bank of Japan has said that it will wait for signs of price stability before adjusting its low interest rate targets.

On Wednesday, the Bank of Thailand may lower rates further. Policymakers cut their policy rate in November following widespread flooding which shut down production across the country.

Also on Wednesday, the Reserve Bank of Australia (RBA) will release 2011’s fourth quarter consumer inflation figures. A private gauge of inflation—the TD Securities Melbourne Institute measure of consumer prices—rose slightly in December but still pointed to low inflation for the quarter as a whole. If official figures follow suit, the RBA would have additional room to lower rates at their February meeting to spur growth.

Japan’s inflation figures will follow on Friday when officials release consumer price index (CPI) data for December. The median opinion among economists surveyed by Market News International is that consumer prices fell 0.1% from a year earlier.

If this forecast proves accurate, Friday’s release would mark the third straight month of falling prices for the country. This would be unwelcome news for an economy which has been struggling with deflation—the opposite of inflation—since the early 1990s.

South Africa
Investors will be watching the Johannesburg Stock Exchange this week to see if January’s rally will continue. Domestic markets are likely to take their cues mainly from events abroad, but two data releases here at home are also likely to attract attention.

On Monday, Statistics South Africa (StatsSA) will release December’s company liquidation data. Liquidation occurs when a business, either voluntarily or through a court order, winds-up its affairs because its liabilities exceed its assets. A large or rising number of liquidations can signal stress in the economy.

November’s release showed that a total of 3 236 South African companies failed during the first eleven months of 2011, an 11.8% decrease from the corresponding period in 2010. Although the year-to-date figures have improved, the monthly trend has not. After reaching their lowest level of the year in May, liquidations increased in every subsequent month through November.

On Thursday, attention will shift to StatsSA’s release of producer price inflation (PPI) figures for December. This measure of cost rises at the producer level recorded double-digit increases in September, October and November compared to the same months in the previous year. Few expect December’s numbers to paint a prettier picture as producer inflation shows no signs of easing.

Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is chief executive of an economic research company and formerly worked for the US treasury department and Federal Reserve Bank of Boston. His blog on the South African economy can be found here.

Matt Quigley

Matt Quigley

Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at www.thoughtleader.co.za/mattquigley Read more from Matt Quigley

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