In a big week for the global economy, America’s central bank will render its verdict on the need for more economic stimulus and Germany’s high court will rule on the constitutionality of Europe’s bailout fund. Here is your guide.
America's central bank will dominate the economic week ahead. Federal Reserve chairperson Ben Bernanke will announce the bank's latest policy decisions on Thursday. Markets do not expect a change in rates, but are hoping that another long-awaited round of stimulus may be announced.
The federal funds rate target level has been set at between zero and 0.25% since December 2008. Since January of this year, officials have said that they intend to keep short-term borrowing rates at "exceptionally low" levels through at least 2014.
In the wake of last Friday's weak employment report – which showed that US employers added a mere 96 000 jobs in August – investors are betting that this pledge will be extended. According to an analysis by the CME Group, traders of short-term US interest-rate futures now see rates remaining on hold at least until the Fed's April 2015 policy meeting.
Markets are also speculating that the August jobs report will prompt the Fed to announce a third round of quantitative easing (QE), the printing of money to purchase assets in the hope that it will stimulate growth. The federal reserve embarked on two previous rounds of asset purchases – QE1 and QE2 – in 2008 and 2010.
Beyond the bank's decision, this week will also bring July's trade figures on Tuesday and August's producer price index on Thursday. Friday will see the release of last month's consumer price index, retail sales and industrial production figures along with this month's consumer sentiment index from the University of Michigan.
Wednesday is a huge day for Europe. General elections in the Netherlands may bring a euro-sceptic coalition government to power, possibly spooking bond markets. European Union officials will lay out their new plans for a continental banking union. And the eurozone will release the currency bloc's latest industrial production statistics.
But the day's biggest event will take place in Germany. In a watershed moment for the region, Germany's constitutional court will issue its ruling on the legality of the country's participation in the eurozone's permanent rescue fund, the European Stability Mechanism (ESM).
The ESM was scheduled to come online in July 2012 after all but one of the eurozone's 17 member states, Estonia, ratified the treaty creating it. Both houses of Germany's parliament – the Bundestag and Bundesrat – approved the country's participation in the plan, but a court challenge brought by a group of politicians, academics, business leaders and others has prevented the country's president, Joachim Gauck, from signing the plan into law.
Germany's court has never before struck down a European treaty and most legal experts do not expect the eight judges in Karlsruhe to do so on Wednesday. But if they do rule Germany's participation in the €700-billion fund unconstitutional, or demand extensive changes to the plan, Europe's leaders will be forced back to square one in their attempts to construct a politically feasible and economically credible plan to assist the continent's struggling economies. Many fear that the eurozone would not survive the wait.
China will dominate Asia's economic news this week. The world's second largest economy released consumer price index, producer price index, industrial production, retail sales and urban fixed investment figures on Sunday.
China's National Statistics Agency reported that consumer inflation rose 2.0% in August from a year earlier, faster than the 1.8% rate reported in July. Producer inflation fell 3.5%, year on year, over the same period.
Industrial output rose 8.9% last month, year on year, the lowest rate of growth reported in more than three years. Retail sales rose 13.2% and fixed-asset investment increased 20.2% during the first eight months of the year, 0.2% slower than the growth observed during the January to July period.
On Monday, the country's data deluge will continue with exports, imports and trade balance data. Economists surveyed by Bloomberg News expect the data to show that export levels grew 2.9% in August from a year earlier, down from 18.0% growth over the past two years. Imports likely grew by 3.5% over the same period, reducing the country's trade surplus to $19.5-billion in August from $25.2-billion in the previous month.
Tuesday will see the release of money supply and lending figures. Bank lending is a key concern for China's monetary policy.
Analysts surveyed by Reuters expect that the broad M2 measure of money supply grew by 14.0% last month from July's 13.9% rise. The country's banks are expected to have lent 600-billion yuan in new loans in August, up from July's disappointing 540-billion yuan total.
Mexico's retail association – ANTAD – will release last month's same store sales figures and government officials will release May's gross fixed investment data – a lagging measure of spending on machinery, equipment and new construction – on Monday.
Gross fixed investment fell by 2.4% from April to May, the largest monthly drop since December 2008. On an annual basis, investment rose 7.4%. Markets expect Monday's release to show that year-on-year growth slowed to 3.0% in May.
Mexico's National Statistics Institute (Inegi) will release July's industrial production data on Tuesday. Markets expect output to have declined 0.2% from June to July, after rising a surprisingly strong 1.3% from May to June.
On Thursday, retail sales figures in Brazil – South America's largest economy – are seen having risen 1.1% in July, down from 1.5% month on month growth in June. And on Friday, Brazil's seasonally adjusted economic activity index is seen having risen 0.30% in July, down from 0.75% growth in June.
Elsewhere in the region, Chile will issue vehicle sales figures on Monday. Peru will release trade balance data on Tuesday. Argentina will release consumer and wholesale inflation figures on Wednesday. Columbia will report its trade balance on Thursday and Peru will release its third quarter inflation report on Friday.
Also this week, Chile's central bank will meet to consider interest rates. Markets expect the bank's monetary policy committee to leave the country's nominal overnight target rate on hold at 5.0% for an eighth consecutive month following its meeting on Thursday.
Troubled platinum miner Lonmin is hoping that striking workers at its Marikana mine will heed management's call to return to work on Monday. Few expect that they will. Workers went on strike in August after their salary demands were not met. Violent clashes between police and workers resulted in the deaths of two police officers, two security guards and 40 miners.
On Tuesday, South Africa – Africa's largest economy – will sell R2.1-billion in government bonds spread between 2023, 2041 and 2048 maturities. The South African Reserve Bank will release its quarterly bulletin covering the April to June period. And Statistics South Africa (Stats SA) will release July's manufacturing production data.
Markets expect the reserve bank's bulletin to show that South Africa's current account deficit narrowed from R152.6-billion in the first quarter to R141.0-billion in the second. As a percentage of gross domestic product (GDP), the deficit is seen falling from 4.9% to 4.7% of GDP.
Analysts at 4CAST expect manufacturing production to have risen 0.1%, on a monthly basis, in July after having fallen 2.4% in the previous month. On an annual basis, production is seen rising 6.1% in July versus 0.8% in June.
Beyond these data, Absa will release its housing price index for August on Monday. The Bureau for Economic Research will release its third quarter building confidence index on Tuesday. The South African Chamber of Commerce and Industry will release its August trade conditions survey on Wednesday and Stats SA will release July's mining data on Thursday.
Matt Quigley writes a weekly economic preview for the Mail & Guardian Online. You can follow him on Twitter at @mattquigley.