Economic week ahead: Postponing the reckoning

Markets breathed a collective sigh of relief on Sunday as Greece’s pro-austerity New Democracy Party placed first in parliamentary elections. Many feared a victory by their principal opponents – the anti-austerity Syriza party – would have pushed the country out of the eurozone with potentially devastating consequences for the global financial system.

This electoral outcome is likely to reassure markets in the very near-term, but does little to change the fundamental problems confronting the deeply fractured and economically reeling eurozone.

The extent of the region’s troubles is expected to be reiterated by a series of downbeat economic data releases scheduled for the week ahead and to feature prominently at a meeting of G20 leaders – representing the world’s largest economies – which begins in Mexico on Monday.

Here is your guide to the meetings, data releases and other events likely to attract investors’ attention in the week ahead.

North America
The big item on America’s economic calendar this week is a two-day meeting of the Federal Reserve (Fed) on Tuesday and Wednesday. Although policymakers are expected to leave the federal funds rate target on hold at 0.0% to 0.25%, expectations are running high that officials may announce further stimulus measures.

In 2008, the Fed announced a $500-billion stimulus programme known as quantitative easing (QE) – an unconventional monetary policy that uses self-created money to buy assets from financial institutions. This floods banks with capital in the hope that they will increase lending, thereby stimulating economic growth.

The size of the Fed’s first round of quantitative easing was increased to $1.25-trillion in March 2009 before ending in March 2010. The central bank announced a second round (QE2) in November 2010. This programme ran until June 2011.

In September 2011, policymakers embarked on a third round of stimulus known as Operation Twist – a $400-billion programme designed to promote more borrowing and spending by pushing down long-term interest rates. This initiative is set to expire at the end of June.

But with inflation low, the labour market still weak and looming risks emanating from Europe, many believe that policymakers will use this week’s meeting to announce an extension to the operation.

Beyond the Fed, economists will be keeping an eye out for housing data, jobless claims figures and a regional manufacturing gauge in the week ahead. New housing construction (housing starts) data will be released on Monday followed by existing home sales on Thursday.

Thursday will also bring the release of weekly initial jobless claims numbers and the Federal Reserve Bank of Philadelphia’s general business conditions index, a closely followed indicator of trends in the manufacturing sector.

Europe
Markets will focus on the implications of the Greek elections this week as well as European leaders’ plans to address the continent’s ongoing debt and economic crises.

Eurozone finance ministers will meet on Thursday and the leaders of Germany, France, Italy and Spain will gather for a summit on Friday. Announcements following either meeting could move markets, though nothing significantly new is expected.

Beyond political developments, markets will be watching three closely-followed business confidence measures scheduled for release this week.

On Tuesday, France’s Institute of Statistics and Economic Studies (INSEE)’s business confidence index and Germany’s Centre for European Economic Research (ZEW)’s economic sentiment index are both expected to decline. Germany’s Ifo Institute’s business climate index, which will follow on Friday, is expected to remain flat after falling sharply last month.

Investors will also anxiously await a series of purchasing managers’ index (PMI) data releases this week. These forward-looking indicators of economic activity are expected to point to a further slowdown in the struggling region.

PMI releases for Germany and France – the continent’s two largest economies – and for the 17-member eurozone as a whole are scheduled for release on Thursday.

Asia
On Monday, officials from the Reserve Bank of India (RBI) will announce their latest rates decisions. Analysts expect policymakers to cut the bank’s reserve ratio by 50 basis points to 4.25% and its repo rate by 25 basis points to 7.75%.

India’s economic growth rate slowed to a nine year low in the last quarter of the 2011/12 fiscal year, but markets tempered their expectations for a larger rate after inflation data released last week showed that price pressures accelerated in May.

This spike in prices prompted the RBI’s governor, Duvvuri Subbarao, to suggest that the bank forego aggressive stimulus in the near-term in order to focus on getting inflation under control.

Elsewhere in the region, Australia’s central bank will release the minutes of its most recent meeting on Thursday. Friday will bring unemployment data from Taiwan, business confidence figures from New Zealand and inflation and foreign reserves numbers from Malaysia.

South America
The UN’s conference on sustainable development will take place in Rio de Janeiro, Brazil this week from Wednesday to Friday. The gathering will focus on building a global blueprint for a “green economy” and is expected to attract more than 115-national leaders. The meeting is not expected to result in any new international treaties.

Notably, US President Barack Obama and German Chancellor Angela Merkel will not attend the summit, but Chinese Prime Minister Wu Jiabao will. China’s foreign ministry announced on Sunday that the premier will meet with the leaders of Argentina, Brazil, Chile and Uruguay to discuss bilateral relations during his trip to the region.

On the data front, Columbia will issue trade balance numbers on Tuesday, industrial production and retail sales statistics on Wednesday, and gross domestic product on Thursday. This week will also bring budget, industrial production, trade and consumer confidence readings from Argentina and lending and unemployment figures in Venezuela and Brazil.

South Africa
South Africa’s domestic data calendar will be dominated by the release of consumer price index (CPI) data by Statistics South Africa (Stats SA) on Wednesday. Economists surveyed by I-Net Bridge expect the annual rate of consumer price rises to have fallen to 6% in May from 6.1% in April.

Elsewhere on the docket, Stats SA will release April’s tourism accommodation, transport and food and beverage figures and the Bureau for Economic Research will release second quarter consumer confidence index readings on Monday.

Stats SA will release quarterly employment statistics on Tuesday and April’s civil cases for debt and building statistics, along with March’s tourism figures, on Thursday.

Thursday will also see the release of a slew of quarterly data from the South African Reserve Bank. Economists are likely to focus on the current account data contained in the release.

Analysts expect South Africa’s first quarter current account deficit to rise to 4.5% of gross domestic product from 3.6% in the fourth quarter of 2011. A current account deficit indicates that South Africa is a net debtor to the rest of the world.

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