/ 23 April 2012

The economic week ahead: Mixed signals likely

In the wake of weaker than expected data in the US and China, and a flare-up in Europe’s long smouldering debt crisis, markets will be paying close attention to a series of key statistics and central bank meetings in the week ahead. Here is your guide.

United States
A series of housing-related data releases, a meeting of the Federal Reserve, weekly jobless claims data and first quarter gross domestic product (GDP) figures will dominate America’s economic calendar this week.

On Tuesday, markets will focus their attention on the release of February’s Case-Shiller index, a gauge of monthly changes in house prices in 20 metropolitan areas of the country. Analysts surveyed by Dow Jones expect the index to have fallen 3.8% in February, the same rate of decline recorded in the previous month.

Later in the day, new home sales statistics are expected to show that sales rose marginally from an annual rate of 313 000 units in February to 315 000 in March. Pending home sales data from the National Association of Realtors — considered a leading indicator of housing activity — will follow on Thursday.

A pending sale is one in which a contract was signed, but not yet closed. Economists surveyed by Bloomberg expect to see a slight 1% uptick in March, following a 0.5% slide in February. Most analysts had expected mild winter weather to have bolstered purchases but, thus far, the actual data has disappointed.

On Wednesday, all eyes will turn to Washington as the Federal Reserve wraps up a two-day meeting. Markets do not anticipate action on interest rates or new stimulus measures at this week’s gathering, but will be scrutinising Wednesday’s post-meeting announcement for signs that policymakers will consider another round of quantitative easing (QE3), should America’s economy wobble further.

On Thursday, markets will focus on the release of last week’s initial jobless benefit claims numbers. This closely followed indicator of labour market conditions has disappointed consistently lately, raising fears that America’s economic recovery is faltering.

This week may bring more disappointing news. Economists expect new jobless claims to have risen to 388 000 last week, close to the psychologically significant 400 000 number — the level above which America’s economy is considered to be shedding jobs.

Finally, on Friday, the US commerce department will release its initial GDP estimate for the first quarter of 2012. Most economists believe that the world’s largest economy lost momentum in the first three months of the year, likely falling from 3% growth in the fourth quarter of 2011 to 2.5% growth in the January to March quarter of this year.

Europe
Europe’s bond markets will remain in focus this week. Investors are likely to pay particular attention to Spanish bond yields.

Spain’s borrowing costs have risen lately on fears that the country’s economy is deteriorating to the point where it will be unable to grow its way out of a fiscal crisis. This has raised concerns that a costly bailout from its European neighbours, the European Central Bank (ECB) and the International Monetary Fund is increasingly likely.

Speaking in Washington last week, European Central Bank executive board member Joerg Asmussen said, “Spain currently has a credibility problem with the markets.”

This credibility problem pushed yields at an auction of €2.54-billion in two and 10-year Spanish bonds last week to around 5.8% from 5.4% at a previous sale. Yields on the benchmark 10-year bond rose further following the auction, breaching the psychologically significant 6% mark before falling to a close of 5.91% on Friday. Any climb in the week ahead will be a worry sign for markets.

Elsewhere on the economic calendar, on Monday, Germany and France — the continent’s two largest economies — will release purchasing managers’ index (PMI) readings. Both forward looking measures of economic activity are expected to show slight improvement, but remain below the 50 mark separating expansion from contraction.

On Wednesday, the UK will release first quarter GDP results. Figures are expected to show that the island nation’s economy narrowly avoided slipping back into recession during the first three months of 2012. Economists surveyed by Reuters expect to see 0.1% growth after a fall of 0.3% in the final quarter of 2011.

On the corporate earnings calendar this week, a series of reports from some of Europe’s largest companies are expected to be considerably more disappointing than a slew of recent upbeat statements in the US. Some of the big names on the docket are Philips on Monday; Novartis and Scania on Tuesday; Credit Suisse, Electrolux and Siemens on Wednesday; Alcatel Lucent, Barclays, Deutsche Bank, Fiat and Shell on Thursday; and BASF, Daimler and WPP on Friday.

Asia
Japan is likely to dominate Asian economic news this week. Government officials will conduct their monthly data dump on Friday shortly before the nation’s central bankers announce their latest policy decision.

Economists surveyed by Market News International expect data from Japan’s Ministry of Internal Affairs and Communications to show that core consumer inflation edged up 0.1% in March, potentially the second month in a row in which the consumer price index (CPI) remained in positive territory. This would be welcome news to policymakers who have long battled deflation, falling prices.

Two additional releases from the ministry are expected to show that the country’s unemployment rate remained unchanged at 4.5% in March and that household spending, building on a 2.3% increase in February, rose 4.1% last month.

Data from the ministry of economy, trade and industry may show that industrial output picked up by 2.1%, month on month, in March following a 1.6% decline in February. Retail sales data are expected to have expanded 9.8%, year on year.

The ministry of land, infrastructure, transport and tourism’s figures on monthly housing starts are forecast to have increased 8.2%, year on year, last month following a 7.5% rise in February.

On an annualised basis, however, the pace of construction is expected to have fallen from 917 000 units in February to 875 000 in March.

Finally, also on Friday, the Bank of Japan will release its latest monetary policy statement, decision on the country’s key overnight lending rate and economic outlook report. Markets are widely forecasting further stimulus from central bankers.

The BoJ has come under intense political pressure to bolster the country’s feeble economy and, last week, bank governor Masaaki Shirakawa said that the central bank would continue to ease policy until Japan met its 1.0% inflation target.

South Africa
Given the relative absence of economic data releases at home, South African investors are likely to take their lead primarily from the numerous economic, corporate and central bank events happening overseas this week. But the domestic calendar is not entirely empty.

On Tuesday, the South African Reserve Bank will publish its latest leading indicator — a composite index designed to provide insights into the economy six months ahead. The leading indicator rose — slightly but steadily — in every month from August of 2011 to January of this year, the most recent month for which data is available.

On Thursday, Stats SA will release last month’s producer price index (PPI) data. Economists expect the annual rate of price rises at the producer level to have fallen slightly from 8.3% in February to 8% in March.

Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found on Thoughtleader.