/ 26 March 2012

The week ahead: Global confidence and local rates

The Week Ahead: Global Confidence And Local Rates

Thursday’s meeting of the Reserve Bank is the big item on South Africa’s economic calendar this week. Elsewhere in the world, snapshots of consumer sentiment in the US and Europe and a slew of data releases in Japan are also likely to generate headlines as the first quarter of 2012 draws to a close.

United States
American markets are anxiously awaiting the release of two consumer confidence measures this week, the Conference Board’s consumer confidence index on Tuesday and the University of Michigan’s consumer sentiment index on Friday.

Economists surveyed by Dow Jones newswires expect the Conference Board’s index to fall slightly to 70.0 in March from 70.8 in February. The University of Michigan’s sentiment index is also expected to decline, from 75.3 to 74.5.

Consumer attitudes drive consumer spending — which accounts for over 70% of total activity in the world’s largest economy — so economists and investors typically watch these numbers closely. But recent comments from US Federal Reserve chairperson Ben Bernanke may drive even more interest than usual in this week’s releases.

“Right now, in terms of debt and consumption, we’re still way low relative to the pattern before the crisis,” Bernanke told a group of students at George Washington University last Thursday. “We lack a source of demand to keep the economy growing.”

A recent snapshot of this source of demand will be made available on Friday when America’s Bureau for Economic Analysis releases February’s personal income and outlays (spending) data.

Economists surveyed by Bloomberg expect the report to show that consumer incomes grew by 0.4% in February, up slightly from January’s 0.3% monthly increase. Consumer spending is expected to have expanded by 0.6% last month compared to 0.2% growth in the first month of the year.

Elsewhere on the economic calendar, government data on the number of durable goods orders American factories received in February — scheduled for release on Wednesday — is expected to show an uptick of 2.9% after a fall of 4.0% in January.

Finally, on Friday, the Institute for Supply Management will release its latest Chicago purchasing managers’ index. Analysts expect this forward looking measure of business conditions in the Chicago region — which somewhat mirrors the country as a whole in its distribution of business activity — is expected to fall slightly from a reading of 64.0 in February to 63.0 in March.

Europe
A series of data releases in Germany and France, along with key money supply and inflation data for the eurozone as a whole, will likely dominate the region’s economic news in the week ahead.

On Monday, Germany’s Ifo Institute will release results from its latest business climate survey. This market-moving assessment of current and expected business conditions has shown steady improvement over the last five months. But most analysts expect March’s reading not to stray far from February’s 109.6 mark, itself a seven month high.

On Tuesday, analysts expect German and French consumer confidence measures to show little change as well. In Germany, the GFK consumer sentiment index is forecast to creep up from a reading of 6.0 in February to 6.1 in March. In France, the INSEE consumer confidence index is likely to remain unchanged from February’s reading of 82.

On Wednesday, the European Central Bank (ECB) will release last month’s M3 money supply data for the euro zone. M3 is a broad measure of the amount of cash available in an economy.

Overall money supply in the currency bloc grew at an annual rate of 2.5% in January, following the ECB’s injection of €489-billion of ultra-cheap cash into the system late last year in an effort to stave off a cash crunch. Economists are forecasting 2.4% growth in February’s figures.

On Friday, data is expected to show that inflation in the eurozone — although still above the ECB’s 2.0% target — may have fallen to 2.6% in February from 2.7% in January.

Finally, also on Friday, the annual growth rate of retail sales in Germany is forecast to drop from 1.6% growth in February to 0.8% in March. The pace of contraction in French consumer spending over the same period, meanwhile, is expected to have accelerated to 2.5% from 2.2%, year on year.

Asia
A slew of data releases in Japan, the world’s third largest economy, will likely dominate Asian economic news this week.

On Thursday, Japan’s Ministry of Economy, Trade and Industry will release last month’s retail sales data. Economists surveyed by Market News International expect February’s figures to show a 1.3% annual rise, marking the third straight month in which sales increased.

On Friday, Japan’s monthly data dump will include consumer price index (CPI), unemployment, household spending, industrial output and housing construction data.

Inflation data is expected to show that consumer prices fell 0.1%, year on year, last month. If the forecast proves accurate, this would mark the fifth straight month during which prices declined in Japan, a nation that has long battled deflation.

Japan’s unemployment rate is forecast to remain unchanged from January’s 4.6%. Data may also show that the ratio of job offers to job seekers in the country declined slightly from 0.74 in January to 0.73 in February, still high by recent standards.

Friday’s data is also expected to show that household spending fell 0.4% for the second straight month in February, albeit at a slower pace than January 2.3% decline.

Industrial output — led by semiconductors, iron and steel production — may have risen 1.3% last month after posting a 1.9% increase in January.

Finally, economists expect government data to show that the pace of housing starts continued to decline for a fifth straight month in February, hampered by labour and material shortages in the construction industry.

South Africa
The big event on South Africa’s economic calendar this week is Thursday’s meeting of the Reserve Bank’s monetary policy committee (MPC). Policymakers — balancing uncomfortably high inflation against slow economic growth — are widely expected to leave the repo rate unchanged at 5.5%, a 30-year low.

Also on Thursday, producer price index (PPI) data from Statistics South Africa (Stats SA) may show that the annual rate of price growth at the producer level fell from 8.9% in January to 8.1% last month.

On Friday, data from the Reserve Bank is expected to show that growth in private sector credit extension slowed from an annual rate of 7.3% in January to 7.1% in February. The rate of borrowing by corporates and consumers has accelerated over the past few months but, with business and consumer confidence waning, few economists expect the trend to continue.

Finally, preliminary trade figures are expected to show that South Africa incurred a monthly trade deficit of roughly R5-billion in February after recording a R13.5-billion deficit in January and R4.7-billion surplus in December.

  • Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is the 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.