The economic week ahead: Pain in Spain

Europe’s debt crisis will be back in the headlines this week as Spain—the continent’s current focal point of concern—holds a key debt auction. Fears are mounting the eurozone’s fourth largest economy may be headed for a bailout. Eyes will also be on a series of corporate earnings reports in the United States and data releases elsewhere in the world. Here is your guide.

United States
Last week, America’s Standard & Poor’s 500 stock index experienced its first back-to-back weekly loss of the year as a bad jobs report and lower than expected Chinese growth figures fuelled concerns about the state of the global economy. Over the coming days, investors are hoping that a series of positive corporate earnings reports may arrest the slide.

Throughout the week, 10 of the 30 companies comprising the Dow Jones Industrial Average will report quarterly earnings along with 86 of the companies in the Standard & Poor’s 500 stock index. Big names on the roster include American Express, Citigroup, Coca-Cola, DuPont, General Electric, Goldman Sachs, Intel, Johnson & Johnson, McDonald’s and Microsoft.

Over the next two weeks, most of America’s largest corporations will issue earnings reports. Collectively, these statements will provide further insight into the performance of the world’s largest economy during the first three months of the year and outlook for the near future.

On the economic calendar, the US Census Bureau will release March results from its retail trade survey on Monday. Economists surveyed by Bloomberg expect slackening auto sales to have slowed the monthly pace of overall retail sales growth to 0.3% in March from 1.1% in February.

On Tuesday, attention will shift to America’s long struggling housing market. Analysts expect data to show that housing starts rose to an annual rate of 705 000 in March from 698 000 in February. The number of new construction permits issued, however, is expected to dip from 717 000 to 713 000 over the same period.

Also on Tuesday, markets expect industrial production data from the Federal Reserve to show a 0.3% uptick in manufacturing, mining and utility output in March following a flat reading in the previous month.

On Thursday, the National Association of Realtors will release March’s existing home sales data. Economists expect the annual rate of sales to remain virtually unchanged at 4.62-million units.

Two business confidence measures are scheduled for release this week in Germany, Europe’s largest economy and industrial powerhouse. Thus far in 2012—despite the region’s woes—German business confidence has held up. That might change this week.

Markets expect the ZEW economic sentiment index—scheduled for release on Tuesday—to slide from 22.3 in March to 20.0 in April. The Ifo Institute’s business climate index, which will follow on Friday, is also expected to fall slightly.

In between these two events, Spain will conduct a debt auction. Treasury officials have yet to announce the volume or the maturity of the bonds they will attempt to auction on Thursday, but the sale is likely to be viewed as a key gauge of investor sentiment.

Concerns are mounting that Spain, whose national debt is expected to spike to roughly 80% of gross domestic product this year, is the next likely flash point in Europe’s long smouldering debt crisis.

Spain’s borrowing costs have been rising steadily since the country held a disappointing debt auction two weeks ago, raising only €2.6-billion of the €3.5-billion officials had hoped. And data from the Bank of Spain, released on Friday, showed that the country’s banks—largely cut off from wholesale credit markets—borrowed a record €316.3-billion from the European Central Bank in March.

This news stoked fears that the country’s banking sector is in dire straits and sent Spain’s IBEX-35 stock index to its lowest level in three years. The cost of insuring the country’s debt against default also reached a record high on Friday.

With that as a backdrop, Thursday’s auction will be watched closely. A bad result is likely to raise expectations that the eurozone’s fourth largest economy is next in line for a bailout.

Finally, Moody’s Investor Services—a credit rating agency—is expected to announce the results of its review of 24 Italian banks’ ratings sometime this week. Moody’s announced in February that it was reviewing the ratings of 114 banks throughout the eurozone. A review of eight Portuguese banks, concluded at the end of March, resulted in five downgrades.

Beginning on Monday, the People’s Bank of China—China’s central bank—will expand the daily yuan trading band against the dollar to 1.0%, up or down, from its previous 0.5% limit. The move is seen as a key milestone on the path to liberalisation of the country’s financial markets and towards China’s goal of making the yuan a rival to the dollar as a global reserve currency.

China’s government has been heavily criticised, particularly by the US, for keeping its currency artificially weak, thereby making their products cheap in international markets relative to competitors. By allowing more fluctuation in the yuan, China may have defused the issue ahead of this week’s annual spring meeting of the International Monetary Fund (IMF) in Washington.

The IMF’s chief, Christine Lagarde, welcomed the move in a statement saying, “this underlines China’s commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate”.

Elsewhere in the region, on Tuesday, most economists believe that the Reserve Bank of India (RBI) will lower its key rate for the first time since April 2009 in an attempt to jumpstart the subcontinent’s economy. India’s economy grew by 6.1% in the final quarter of 2011, its lowest rate of growth in almost three years.

The majority of economists surveyed by Reuters expect policymakers to cut the bank’s repo rate from 8.50% to 8.25%. Analysts expect the central bank to leave its cash reserve requirement—the share of deposits lenders must keep with the RBI—unchanged at 4.75%.

South Africa
Statistics South Africa (Stats Sa) will release a slew of information this week, but last month’s consumer inflation data is likely to dominate the headlines.

Wednesday’s consumer price index data could show that consumer inflation eased slightly in South Africa from an annual rate of 6.1% in February to 6.0% in March. If market expectations prove accurate, this would be the second month in a row of welcome inflationary news for policymakers.

Inflation—which has been running above the upper end of the Reserve Bank’s 3.0% to 6.0% target range since November of last year—was lower than the 6.3% most analysts had expected to see in February. Economists attributed the decline to lower than forecast food price rises, primarily.

Amongst other factors, easing food price pressures—coupled with an Eskom tariff increase of 16.0% for the 2012/13 financial year, versus the 25.9% increase the National Energy Regulator of South Africa had previously approved—has led many economists to revise their inflation expectations for the months ahead downward.

Later on Wednesday morning, Stats SA will release retail trade statistics for February. Retail sales slumped unexpectedly in January, falling from 8.7% annual growth in December to 3.9% growth in January. Markets had predicted a 6.5% rise. Economists expect to see a bit of a rebound in February’s data, however. The consensus is for a 4.7% increase, year-on-year.

On Thursday, Stats SA will release February’s data on the number of civil cases for debt, wholesale trade, motor trade and building statistics. Friday will bring the release of Absa’s housing price index for March and detailed trade data for February from the South African Revenue Service.

Matt Quigley writes the weekly economic preview for the Mail & Guardian. Read his blog on the South African economy 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 Read more from Matt Quigley

Client Media Releases

Winners for 2017 GAP Innovation Competition announced
Investing in cryptocurrencies
Project ETA at Palletways