/ 17 September 2012

Economic week ahead: Basking in the afterglow

The US Federal Reserve and European Central Bank's open-ended stimulus programmes have lifted markets around the world.
The US Federal Reserve and European Central Bank's open-ended stimulus programmes have lifted markets around the world.

During the past two weeks, the US Federal Reserve and European Central Bank announced open-ended stimulus programmes. Their long-awaited action has lifted markets around the world to multi-year highs. Will the rally continue?

Here is your guide to the data releases, central bank meetings and other events likely to drive investors' decisions in the week ahead.

North America
The latest reports on the state of America's economy – the world's largest – are likely to paint a mixed picture this week.

On Monday, the New York Federal Reserve will release its general business conditions index. Analysts surveyed by Dow Jones expect the index to rise to zero from last month's negative reading, the first since October 2011.

On Tuesday, government data may show that America's current account deficit narrowed to $122.5-billion in the second quarter from $137.3-billion in the first and the National Association of Home Builders' housing market index may improve marginally. Economists surveyed by Bloomberg expect the gauge to edge up to 38 in September from 37 in August.

More housing data will follow on Wednesday when government officials release housing starts data and the National Association of Realtors releases existing home sales figures.

Analysts surveyed by Dow Jones see housing starts rising 2.5% in August, an improvement on July's 1.1% decline. Existing home sales are seen rising 1.8% last month, down from July's 2.3% rise.

On Thursday, markets expect the Philadelphia Federal Reserve's general business conditions index – a widely-followed indicator of manufacturing trends – to improve to a reading of -5.0 from -7.1 in August. Weekly jobless benefit claims filings – also scheduled for release on Thursday – are seen falling by 10 000 to 372 000.

To America's north, Canada will release consumer price index and wholesale sales data on Friday. On a monthly basis, inflation is seen picking up slightly. Sales are expected to remain flat.

Europe
On Tuesday, Germany's Centre for European Economic Research (ZEW) will release its closely followed economic sentiment index. Analysts expect the index to fall further into negative territory, suggesting financial professionals in Europe's largest economy remain deeply pessimistic. ZEW's economic sentiment index for the eurozone is also expected to decline.

On Thursday, markets will focus on purchasing managers' index (PMI) results for Germany, France – Europe's second largest economy – and for the 17-member eurozone as a whole.

Economists expect Germany's manufacturing purchasing managers' index (PMI) to show a slight improvement – from 44.7 in August to 45.3 in September – but remain well below the 50-mark separating expansion from contraction. Germany's services sector PMI is seen barely rising – from 48.3 to 48.5 – over the same period.

France's manufacturing PMI is seen improving from 46 to 46.4 and the country's services PMI is expected to hold steady at 49.2. The eurozone's manufacturing PMI is expected to edge up from 45.1 to 45.5 and the currency bloc's services PMI is forecast to move from 47.2 to 47.5.

The United Kingdom will also produce several highly anticipated data sets this week. On Tuesday, officials will release last month's consumer prices and retail prices indices.

Analysts expect that both gauges recorded 0.5% growth last month.

On Thursday, CBI will release its latest industrial trends survey results and government will issue last month's retail sales figures, which may show a 0.3% monthly decline.

Finally, on Friday, officials will release the country's latest public borrowing figures.

Asia
The Reserve Bank of India will issue its latest rates decision on Monday. Despite widespread worries over the country's growth prospects, with inflation still a concern, markets expect officials to leave rates on hold.

Most analysts believe that the Bank of Japan (BOJ) will also refrain from announcing new policy actions at the conclusion of its two-day meeting on Wednesday but pressure on the country's currency may force officials' hands.

The yen surged against the dollar in the run-up to last Thursday's announcement by the US Federal Reserve that it would embark on a new round of asset purchases. These purchases – referred to as quantitative easing – lower yields on US bonds. This makes Japanese debt more attractive and drives overseas capital to the island. Because Japan is an export-oriented nation, the resultant strong local currency runs the risk of worsening the country's economic slowdown.

Japan's Finance Minister Jun Azumi hinted to markets on Friday that a currency intervention may be imminent if the yen strengthens further against the dollar and urged the independent BOJ to act. If officials choose to heed Azumi's call, analysts believe that an expansion of the bank's ¥70-trillion asset buying and loan programme by up to ¥10-trillion is their most likely option.

Beyond these two central bank meetings, investors will be waiting for Wednesday's release of the HSBC China purchasing managers' index (PMI). This forward-looking economic indicator fell to 47.6 in August, its lowest level since March 2009. Any reading below the 50-mark indicates contraction.

Latin America
On Monday, Brazil's Getulio Vargas Foundation (FGV) will report weekly (IPC-S) and monthly (IGP-10) consumer inflation data and the labour ministry will release formal job creation (CAGED) figures. The CAGED numbers are expected to show that 195 000 jobs were created last month, up from 142 496 in July.

More inflation data will follow on Tuesday when FGV releases its general price index (IGP-M) – the reference measure used to set the prices of public services – and the Foundation Institute of Economic Research (Fipe) releases its weekly inflation measure.

On Thursday, officials are expected to release the country's latest employment data. The release of Brazil's unemployment rate was delayed for the second month in a row in August due to a strike.

Elsewhere in the region, Venezuela will release lending and employment data on Monday. Columbia will report industrial production and retail sales figures on Tuesday and gross domestic product figures on Thursday.

Mexico will report retail sales figures on Thursday and unemployment figures on Friday. Markets expect sales data from Mexico's national statistics office – Inegi – to show that consumer purchases decreased from 5.6% year on year growth in June to 3.4% growth in July. The country's unemployment rate is seen rising slightly from 5.02% in July to 5.10% last month.

Argentina will issue industrial production figures on Thursday and current account balance and quarterly GDP data on Friday. President Cristina Kirchner will also submit her government's 2013 budget to the lower house of the country's congress on Friday.

Africa
The Central Bank of Nigeria's monetary policy committee will announce its latest rates decision on Tuesday. Bismarck J. Rewane – managing director of Lagos-based Financial Derivatives Company Limited – said earlier this month that "the consensus is that interest rates may be shaved". But he considers the decision "too close to call."

In a presentation to the Lagos Business School's breakfast club, Rewane set the likelihood of a quarter-point cut to the bank's monetary policy rate (MPR) at 45%. He saw a 40% probability that officials will leave the MPR unchanged at 12% and a 15% chance that they will raise rates by 25-basis points.

South Africa's Reserve Bank will follow with its own rates announcement on Thursday. Markets expect officials to leave the bank's 5% repo rate on hold.

In addition to these two key rates decisions, investors will be on the lookout for a number of economic data releases this week. Most notably, Statistics South Africa will release quarterly employment statistics for the April to June quarter on Tuesday followed by consumer price index (CPI) data for August and July's retail sales figures on Wednesday.

Markets expect CPI data to show that consumer inflation eased, on a year on year basis, from 6% in July to 5.9% in August. Retail sales growth is seen falling from 8.3% annual growth in June to 6.8% growth in July.

Elsewhere on the continent this week, Nigeria will issue private sector credit and money supply data and Egypt will report foreign trade figures.

  • Matt Quigley writes a weekly economic preview for the Mail & Guardian Online. You can follow him on Twitter at @mattquigley.