Economic week ahead: Interested in a rate cut?

Will the governor of the reserve bank, Gill Marcus, announce a rate cut this week? (Samantha Reinders, M&G)

Will the governor of the reserve bank, Gill Marcus, announce a rate cut this week? (Samantha Reinders, M&G)

The South African Reserve Bank's monetary policy committee will issue its latest rates decision this week. Some analysts are speculating that – with price pressures easing and growth slowing – a rate cut is possible.

Meanwhile, earnings season is in full swing in the US this week. Investors will be paying particularly close attention to companies' trading outlooks in the face of mounting evidence of an impending global slowdown. 

Here is your guide to these and other events likely to move markets in the week ahead.
 

North America
This is a busy week for data in the US, the world's largest economy. Releases kick off on Monday with June's retail sales figures and a regional survey of manufacturing.

Economists polled by Dow Jones expect to see a 0.2% rise in retail sales. This month's Empire State manufacturing index – based on a survey of New York manufacturers – is expected to show a reading of 5.00, up from June's 2.29 mark, but still well below May's very strong 17.09 reading.

June's Consumer Price Index and industrial production data will follow on Tuesday.  Analysts anticipate a 0.1% and a 0.4% increase in each measure, respectively.

Also on Tuesday, Federal Reserve chairperson Ben Bernanke will begin two days of testimony before Congress. Markets will be listening closely for hints at further stimulus measures.

On Wednesday, the Census Bureau will release housing starts and building permits data. Markets expect a 5.5% rise in last month's housing starts, but a 1.1% decline in new construction permits.

On Thursday, June's existing home sales are seen rising 2.2% after a 1.5% fall in May. Weekly jobless benefit filings are expected to jump by 20 000 to 370 000. And a regional manufacturing gauge from the Philadelphia Federal Reserve is forecast to show some improvement this month from June's abysmal reading of -16.6. 

This week's corporate calendar is also packed with releases. Notably, several banking giants will issue results, including: Citigroup on Monday; Goldman Sachs and State Street on Tuesday; Bank of America and US Bancorp on Wednesday; and, Bank of New York, Morgan Stanley, Fifth Third and Capital One on Thursday. 

Elsewhere on the continent, central bankers in Canada and Mexico will meet to consider interest rates on Tuesday and Friday, respectively. Policymakers in both countries are expected to leave rates on hold.

Europe
Markets will be watching developments related to Europe's ongoing debt crisis this week. Details are expected to emerge on the eurozone's bailout plan for Spain's banking sector.

On Thursday, Germany's Bundestag is expected to approve aid measures for Spain's embattled financial institutions. Chancellor Angela Merkel's centre-right coalition controls a majority of the chamber and the country's largest opposition party – the centre-left Social Democratic Party – indicated last week that it would vote with the government.

Following the vote, on Friday, eurozone finance ministers will conduct a conference call to discuss the details of the recently announced €100-billion bailout of Spanish banks. According to a report on Saturday in Der Spiegel, officials at the European Financial Stability Facility are proposing an initial €30-billion payment to Spain at the end of July.

Roughly €20-billion would be used to bolster banks' short-term finances, the report said, while the remaining €10-billion would be reserved as a long-term reserve fund. Three further payments totaling €45-billion would be extended in November and December 2012 and in June 2013. Finally, up to €25-billion would be set aside to create a "bad bank" to buy particularly low quality debt from other lenders.  

Meanwhile, the dominant item on Europe's data calendar this week is Germany's ZEW institute's economic sentiment index, scheduled for release on Tuesday.  German investor sentiment fell by its fastest rate since October 1998 in June. Analysts expect to see some improvement in this month's forward-looking gauge, but slight slippage in assessments of current conditions.

Asia
Inflation data and a presidential election in India – Asia's third largest economy – will keep investors focused on the subcontinent this week.

India will release its headline inflation index – the wholesale price index (WPI) – on Monday. Analysts surveyed by Reuters expect the measure to show that prices rose 7.62%, year on year, in June, up from 7.55% in May.

India's inflation – which averaged 9.52% through 2010 and 2011 – is the highest among the Brics nations of Brazil, Russia, India, China and South Africa. Despite a series of aggressive interest rate hikes by the Reserve Bank of India (RBI), price pressures have continued in 2012.

Faced with high inflation and flagging growth – which dropped to a nine-year low in the first quarter – policymakers held rates steady at their June meeting and, in light of this week's data, are expected to do the same at their next meeting, scheduled for later this month.

On Thursday, India will hold presidential elections. Analysts expect former finance minister Pranab Mukherjee to be selected for the ceremonial post and hope that the election will kick-off a series of long-awaited policy reforms – including a hike in diesel prices and changes to certain foreign investment rules – by government.

South America
South America's economic calendar is relatively light this week, but a few events will still garner markets' attention.

Brazil will release formal job creation figures on Monday. Analysts expect the data to show that the world's second largest emerging market added 137 500 jobs in June, down from 139 679 in May.  

Brazil's economy has performed poorly in 2012. According to the central bank's most recent survey of financial institutions, market consensus is for 2% gross domestic product (GDP) growth this year.

Elsewhere in the region, Argentina will release May's economic activity data and June's industrial production statistics on Friday. Markets expect both sets of figures to show further evidence of a slowdown in South America's third largest economy.

Argentina's economy grew by 8.9% in 2011, but has slowed sharply this year. In response, Argentine President Cristina Fernandez has announced an increasingly aggressive and unconventional set of economic policies designed to stimulate growth.

Most recently, Fernandez announced on July 4 that the government would force private banks to lend to local businesses at interest rates well below inflation. Loans would carry a maximum interest rate of 15.9%. Inflation is running at about 25% according to private sector estimates.

Africa
The South African Reserve Bank's monetary policy committee (MPC) will take centre stage this week. Most economists expect policymakers to leave the repo rate on hold at 5.5% – its lowest level since 1976 – at Thursday's meeting. But in the wake of loosening moves by other central banks around the world, some analysts are speculating that a rate cut is not out of the question.

Governor Gill Marcus and her colleagues have more room to manoeuvre at this month's meeting than they have had in recent months and, some argue, more reason to act as well.

Inflation – as measured by the consumer price index – fell to 5.7% in May, below the upper end of the reserve bank's 3% to 6% inflation target band. June's figures – scheduled for release on Wednesday – may show a further easing of price pressures, possibly to 5.6% year on year.

Meanwhile, a series of recent economic data releases have shown that South Africa's economy is struggling under the weight of domestic and overseas economic pressures. These two factors – easing price pressures and diminished growth prospects – have led some analysts to speculate that the MPC may cut the repo rate by 50-basis points sooner rather than later.

  • Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is CEO of African Foresight Network, a former divisional director at the US treasury department's office of the comptroller of the currency and a former policy analyst at the Federal Reserve Bank of Boston.
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 www.thoughtleader.co.za/mattquigley Read more from Matt Quigley

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