French President-elect Francois Hollande.
Markets on Monday will respond to Nicholas Sarkozy’s electoral loss to Francois Hollande in Sunday’s French presidential election and to parliamentary elections in Greece. The close alliance between Germany’s Angela Merkel and Sarkozy saw the duo dubbed “Merkozy” in the European press. With Sarkozy off the stage, some global investors believe that a Merkel-Hollande pairing may become “Merde” in more ways than one.
Beyond election results, central bank speeches in America, industrial production figures in Europe, a slew of data from China and a number of key releases in South Africa are likely to make for an interesting week in the markets. Here is your guide.
United States
America’s economic calendar is relatively light this week but a few noteworthy data releases and a series of speeches from central bank officials will keep markets on their toes.
On Tuesday, the National Federation of Independent Businesses (NFIB) will release last month’s small business optimism index. Despite a recent string of disappointing data, economists expect to see a slight increase from 92.5 in March to 93 in April.
On Thursday, economists surveyed by Dow Jones expect government figures to show that America’s trade deficit — the amount by which the country’s imports exceed exports — widened to $49.7-million in March after unexpectedly falling to $46-billion in February.
Analysts expect a separate government report to show that export prices increased 0.2% and import prices fell 0.2% between March and April. Investors watch these figures as a gauge of inflation and for their potential impact on bond and foreign exchange markets.
On Friday, the country’s producer price index (PPI) — a measure of wholesale price changes — is expected to have risen 0.1% in April after having remained flat in March. Excluding food and energy prices, core PPI is forecast to have increased 0.2% last month, down slightly from 0.3% in March.
Beyond these data releases, investors will be scrutinising a series of public remarks from Federal Reserve officials throughout the week. Following last week’s disappointing jobs report, speculation is mounting that policymakers may soon embark on another round of quantitative easing (QE3) — a policy designed to promote increased lending by flooding financial institutions with capital.
Federal Reserve chief Ben Bernanke will address a banking conference on Thursday. The presidents of the Richmond, Dallas, Cleveland, Philadelphia and Minneapolis reserve banks are also scheduled to speak throughout the week.
Europe
Investors will be watching markets closely to see how they respond to election results in France and Greece. Voters in both countries punished those who had supported the strict austerity measures championed by Germany as a solution to the continent’s debt crisis.
Sarkozy’s loss to Hollande — an opponent of austerity — was widely expected and, many analysts believe, already priced in by investors. The effect of the Greek elections is less clear.
With about 95% of votes counted, the only two political parties supporting the recent bailout programme from the European Union and International Monetary Fund (IMF) were unable to maintain their joint parliamentary majority. Their loss raises the prospect of political paralysis as the two parties struggle to construct a unity government with smaller parties fervently opposed to the deal.
Beyond the election results, markets are likely to focus on a slew of European industrial production statistics scheduled for the week ahead. March readings from the continent’s largest economies — including Germany, France and the UK — are expected to provide further evidence of a slowdown in the region.
German industrial production is expected to have declined 1.2%, year-on-year, in March following a 1.0% decline in February. France is expected to show a 0.5% fall-off. For the UK, analysts are forecasting a 2.5% decline in output.
Spain will issue its figures on Monday. Hungary, Turkey, Norway and Germany will report on Tuesday. France, the Czech Republic, Holland, Sweden, Italy, and the UK will follow on Thursday. And Romania will close out the week on Friday.
On the policy front, the Bank of England (BoE) will gather on Thursday to consider interest rates. Markets widely expect officials to leave the bank’s 0.5% rate unchanged, but are less agreed on the prospects of a further stimulus announcement.
In February, the BoE expanded its bond purchasing programme by £50-billion to £325-billion. Britain’s economy is shrinking and the country faces a lacklustre outlook but inflation remains stubbornly high. As a result, most economists do not expect officials to announce additional quantitative easing — which carries inflationary as well as stimulatory potential — this week.
Asia
A series of Chinese data releases will dominate Asian economic news this week. China — the world’s second largest economy — will report key inflation, trade, industrial production and retail sales data on Friday.
The country’s consumer inflation accelerated more than expected in March, rising 3.6% from a year earlier, but analysts at Bank of Communications — one of China’s oldest banks — expect to see some easing in April.
In a report released on April 29, the bank said that food prices — which account for one-third of the basket of goods used to calculate the country’s CPI — declined by as much as 1% last month. Analysts also forecast a 1.6% decline in non-food prices in April, bringing the overall rate of price rises to an estimated 3.3% for the month.
Markets expect trade data to show that China’s export volumes grew at a rate of 8.5%, year-on-year, in April. Imports were expected to pick up a faster pace, rising by 10.9% last month from 5.3% in March. Analysts expect the country’s monthly trade surplus to have widened from $5.3-billion to $9.8-billion.
Industrial production is expected to have edged up slightly from 11.9% year on year growth in March to 12.1% expansion in April. The rate of growth in retail sales is expected to slip from 15.2% to 15.1% over the same period.
Elsewhere in the region, Taiwan will report trade data and Indonesia will report gross domestic product (GDP) figures on Monday. Australia will report trade numbers on Tuesday. Malaysia’s will follow on Wednesday, which will also bring bank lending data and current account information from Japan.
On Thursday, the Bank of Korea is expected to leave its policy rate unchanged at 3.25% and Indonesian officials are expected to hold at 5.75%. Australian officials may announce a rise in the country’s unemployment rate from 5.2% to 5.3%.
Finally, on Friday, analysts at 4CAST expect Indian officials to report that the country’s industrial production fell from 4.1% growth, year on year, in March to a 2.5% contraction in April.
South Africa
On Tuesday, the South African Reserve Bank will report reserve figures and Statistics South Africa (StatsSA) will release its quarterly labour force survey (QLFS). Economists expect the report’s unemployment figures to remain largely unchanged. Analysts expect the rate of joblessness to have fallen from 23.9% in the fourth quarter of 2011 to 23.5% in the first quarter of 2012.
On Wednesday, Eskom will auction R250-million in inflation-linked bonds. The utility said last week that the bonds will carry a coupon rate of 2.55%.
On Thursday, StatsSA will release March’s mining and manufacturing numbers. Last week, data showed that the purchasing managers’ index (PMI) — a forward looking indicator of economic activity in the sector that accounts for 13% of the country’s formal employment — fell by 1.4 index points in April. Economists expect manufacturing production statistics to show similarly disappointing results, likely slipping from 4.1% growth to 3.3% growth.
On the corporate calendar, Harmony Gold will report third quarter earnings on Wednesday. AngloGold Ashanti will hold its annual general meeting and report first quarter earnings on Thursday, as will steel-maker ArcelorMittal
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.