The economic week ahead: It's all Greek to me

Can Greece avoid a messy default on its debt? As European leaders gather in Brussels and markets across the world open for trading on Monday morning, this is the question on everyone’s minds. In Europe’s shadow, governments and companies around the world will update markets on the state of their own affairs. Here is your guide to the week ahead.

United States
A slew of economic data and corporate earnings reports will likely dominate America’s business headlines in the days ahead.
Although Friday’s gross domestic product reading came in lower than expected, this week’s releases are expected to paint a broadly positive picture of the world’s largest economy.

On Monday, officials will release December’s personal income and consumer spending figures. Economists expect that incomes grew 0.4% in the month after notching up 0.1% in November. Spending, which showed soft growth of 0.1% in November, is expected to have done the same in December.

On Tuesday, economists expect the Conference Board’s consumer confidence index—which reached its highest level in eight months in December—to improve further in January. A separate measure of business confidence—the Institute for Supply Management’s (ISM) Chicago purchasing managers index—is also expected to tick upwards, albeit only slightly.

On Wednesday, the ISM’s broader manufacturing index—which surveys firms nationwide—is expected to move further away from the 50 mark separating expansion from contraction. Analysts expect to see a reading of 54.5 in January’s release, up from 53.9 in December and 52.7 in November.

Thursday’s weekly jobless claims numbers may show a drop to 370 000 new claims filed during the week ended 28 January from 377 000 in the previous. Despite a rise in new claims last week, this statistic’s four-week moving average has been trending steadily downwards for months.

More information on America’s labour market will follow on Friday when officials release January’s employment situation report. Analysts expect data to show that America’s unemployment rate held steady at 8.5% in January. Average hourly earnings are forecast to have risen 0.2%, month-over-month.

Finally, on the corporate earnings calendar, over 100 of the companies listed on the Standard & Poor’s 500 stock index will report earnings in the week ahead. Roughly 60% of the companies that have reported results recently have exceeded analysts’ expectations. This is down from about 70% in recent quarters.

Europe
Yet another European summit and on-going Greek debt talks will likely dominate Europe’s business headlines this week.

On Monday, European Union (EU) leaders will gather once again in Brussels to discuss the continent’s many economic challenges. Officials are expected to focus on finalising agreement for the economic bloc’s permanent bailout fund for debt-laden members and plans to enforce greater budgetary discipline among the region’s profligate governments.

Officials are expected to sign-off on the European Stability Mechanism (ESM) on Monday, but crucial details—such as how the fund might be increased beyond its current size of €500-billion, should the need arise—are not expected to emerge for months. Nearly unanimous support for a pledge to impose stricter tax and spending rules on eurozone members is also expected.

Unfortunately, even positive news from the summit may be overshadowed by the situation in Greece. Talks between the private sector and Greek officials over the level of loss investors will agree to bare to reduce the country’s debt burden are at a deadlock. According to widespread news reports, the parties remain divided over the interest rate that Greece will pay on the new bonds it issues to replace its existing debts.

Greek officials have said that they require €14.5-billion in aid by March to cover their payment obligations. But European governments and the International Monetary Fund have said that, without a private sector agreement in place first, they will not provide further funding. If talks fail, and the donors hold to their word, Greece could default on its debt. Such an event, analysts fear, could further undermine confidence in the eurozone and trigger a financial crisis.

Asia
Three reports on Japan’s economy and several corporate earnings statements will likely dominate Asian economic news this week. Elsewhere on the calendar, global investors will be anxiously awaiting the release of two closely followed gauges of China’s massive manufacturing sector.

On Tuesday, Japanese officials will release December’s industrial production, household spending and employment data. Analysts expect mixed news.

Industrial production statistics are expected to show their first month-on-month rise in two months. Economists forecast that production rose 2.7% in December, after falling by the same percentage in November.

Household spending, however, is expected to have declined 0.1% from a year earlier. If this forecast proves accurate, it would mark the tenth straight month in which household spending fell, year-over-year.

Data from the country’s Ministry of Internal Affairs and Communications is expected to show that Japan’s unemployment rate likely remained unchanged at 4.5% last month.

Corporate earnings reports from household names such as Sony, Panasonic and Toshiba are also likely to generate buzz this week. Japanese manufacturers have been plagued by natural and man-made calamities over the past year and the negative influence of these events is expected to emerge in their earnings reports.

On Wednesday, investors will shift their attention to China as HSBC and the China Federation of Logistics and Planning both release their January purchasing managers’ index (PMI) survey results. PMI readings are broadly followed as an indicator of future economic activity.

Preliminary results from HSBC pointed to a reading of 48.7 for the month, below the 50 mark separating expansion from contraction. The government’s PMI reading, compiled by CFLP—which many analysts consider to be less reliable—is expected to remain in positive territory, but only just.

South Africa
South African investors have grown accustomed to keeping one eye on Europe and the other on events at home. This week is likely to bring more of the same. The actions—or inactions—of our neighbours to the north will likely continue to move markets this week, but several domestic data releases will also garner widespread attention.

On Monday, Statistics South Africa (Stats SA) will release October’s tourism figures. This will be followed on Tuesday by the South African Reserve Bank’s monthly snapshot of the nation’s economy and the South African Revenue Service’s preliminary trade data for December.

On Wednesday, the Bureau for Economic Research will release January’s PMI reading. PMI fell below the key 50 mark in December after recording three months above the threshold separating expansion from contraction. Further erosion in this week’s release would be unwelcome news.

On Thursday morning, the National Association of Automotive Manufacturers of South Africa will release new vehicle sales data for January. Slightly later in the day, Stats SA will release production capacity figures for the final quarter of 2011 and electricity data for December.

Matt Quigley writes the weekly economic preview for the Mail & Guardian Online. He is chief executive of an economic research and forecasting firm 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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