Economic week ahead: Looking for clarity

A possible clarification of the US Federal Reserve’s policy intentions, the beginning of the second quarter corporate earnings season and key economic data from China will dominate this week’s economic calendar.

Elsewhere in the world, Europe will provide a series of industrial production snapshots, as will South Africa. The central banks of Kenya, Thailand, Brazil, Japan, South Korea, Malaysia, Indonesia, Mexico and Mozambique will report their latest policy decisions. And the International Energy Administration will issue its latest oil market report. Here is your guide to the chock-a-block week ahead.

United States
America’s economic week will begin with May’s consumer credit figures on Monday. The National Federation of Independent Businesses' June small business optimism index will follow on Tuesday. But economists and investors will really begin to sit up and take notice on Wednesday.

Midweek, the Federal Reserve will release the minutes of its most recent policy meeting and its chairman, Ben Bernanke, will speak at the National Bureau of Economic Research. Analysts will pay close attention to his comments for any hint that last week’s surprisingly strong jobs report – which showed that a consensus-beating 195 000 jobs were created in June – might precipitate an accelerated end to the central bank’s bond-buying stimulus programme.

Bernanke said in May that the quantitative easing programme would be scaled back from its current $85-billion in monthly purchases if economic growth met the Fed’s targets. He said in June that purchases may end entirely by mid-2014.

According to a recent Reuters’ poll, 11 of the 16 primary dealers surveyed indicated that they expect the Fed to begin tapering its stimulus in September of this year. Primary dealers are the 21-financial institutions that serve as trading counterparties to the Federal Reserve Bank of New York in its implementation of monetary policy.

Weekly jobless claims figures and June’s import and export price report along with Friday’s June producer price index (PPI) and July consumer sentiment readings from the University of Michigan will close out the week’s data diary.

In addition to this week’s economic releases, second quarter corporate earnings reports will begin trickling in over the coming days, providing another window into the health of the US and global economies. Based on warnings from companies, investors are expecting weak numbers. According to figures from S&P Capital IQ, analysts expect aggregate earnings per share to drop slightly in the second quarter from the first, but to accelerate significantly during the second half of the year.

A series of industrial production reports covering the month of May will dominate Europe’s economic data calendar this week. The Czech Republic, Switzerland, Sweden and Germany – the continent’s largest economy and industrial powerhouse – will report figures on Monday followed by the United Kingdom on Tuesday.

Analysts expect Germany’s production to have fallen 0.5% on a monthly basis in May following a surprise 1.8% uptick in April, the strongest monthly gain since March of last year. If the consensus forecast proves accurate, May will have been the first month in four in which Germany’s production fell.

The UK’s industrial production likely rose 0.2% on a monthly basis, following April’s 0.1% increase. On an annual basis, however, production likely fell 1.4%. Manufacturing output likely rose by 0.4% in May from April, but declined 1.5% on an annual basis.  

France, Romania, Holland and Italy will release output figures on Wednesday. Numbers for Hungary and for the 17-nation eurozone as a whole will close out the week on Friday.

Economists expect France’s figures to show that output in the region’s second largest economy fell by 0.7% on a monthly basis but eked out 0.1% growth from a year earlier. Manufacturing production likely declined on both a monthly and annual basis, by 0.8% and 0.5% respectively.  

Euro zone industrial production defied expectations for a monthly decline in April, rising 0.4% from March. On an annual basis, however, output still fell 0.6% from a year earlier. Consensus is that production shrank by 0.2%, on a monthly basis, and by 1.3%, on an annual basis, in May.

China – the world’s number two economy – will loom large over Asian markets this week. Officials will
report consumer and producer inflation on Tuesday and last month’s trade figures on Wednesday.

China’s CPI rose by 2.1% in May from a year earlier, down from 2.4% in April. The National Bureau of Statistics said that the fall in consumer inflation was principally attributable to a sharp drop in vegetable prices, which fell 13.8% from April to May. Consensus is that consumer inflation edged back up to 2.5% year on year growth in June, still well below China’s goal of less than around 3.5% for this year.  

China’s PPI – which measures prices at the factory gate – fell 2.9% in May from a year earlier. May marked the 15th consecutive month of wholesale price declines and the steepest drop in seven months, a sign of continued weak demand. Consensus is that the PPI declined 2.6% on an annual basis in June.

Markets expect Wednesday’s trade figures to show that China’s trade surplus rose to $27.8-billion in June from $20.4-billion in May. Exports are thought to have risen 3.9% last month from a year earlier – up from a 1.0% annual rise in the prior month – while imports probably rose 6.2% over the same period – up from a 0.3% decline in May.

Elsewhere in the region, central bankers in Thailand and South Korea are expected to leave their benchmark rates on hold at 2.5% on Tuesday and Thursday, respectively. Policymakers at Malaysia’s central bank are also likely to leave its overnight repo rate unchanged at 3.0% on Thursday, but their colleagues in Indonesia may vote for 25-basis point rate hike.

The Bank of Japan – also set to announce policy decisions on Thursday – is not expected to change rates, but may revise its assessment of the world’s third largest economy upwards for the seventh consecutive month.

Latin America
Central bank decisions in Brazil and Mexico – the region’s two largest economies – as well as in Chile and Peru will dominate Latin America’s economic calendar over the coming days.

The central bank of Brazil – South America’s largest economy – will meet on Wednesday to consider interest rates. Alexandre Tombini and his colleagues on the monetary policy committee voted unanimously to raise the bank’s benchmark Selic rate by a half-point to 8.0% at their May meeting and analysts are expecting another half-point rise this week.

Brazil’s annual inflation rate rose at its highest rate in 20-months in June. The country’s benchmark IPCA consumer price index rose 6.7% last month from a year earlier, above the 6.5% ceiling of the government’s target range.

Most economists believe that Brazil’s consumer inflation rate probably peaked in June and consensus calls for inflation to fall below 6.0% by year’s end. Markets expect another rate hike, in addition to this week’s, to bring the Selic to 9.0% before officials stop tightening.

Policy meetings at the Banco Central de Chile and the Central Reserve Bank of Peru will follow on Thursday. Markets expect Chilean officials to leave the bank’s 5.0% nominal overnight rate unchanged. No change is expected to Peru’s 4.25% reference rate either.

Finally, on Friday, Mexico’s central bankers will take centre stage. The Banco de Mexico kept its benchmark interest rate unchanged at 4.0% in June – a record low – and officials are highly likely to do so again this week. A sharp depreciation in the value of Mexico’s peso to the US dollar has effectively ruled out the possibility of a rate cut.

Kenya’s central bank will announce its latest interest rates decision on Tuesday. Policymakers cut the bank’s benchmark lending rate by 100-basis points to 8.5% at their May meeting. But near-term inflationary risks may cause officials to leave policy unchanged at this week’s meeting.

Kenya’s consumer price inflation rate increased sharply in June. The country’s consumer price index (CPI) rose by 4.9% from a year earlier to a nine month high. Inflationary pressures are rising due to an increase in money supply growth, higher government spending levels and a weaker shilling.

Mozambique’s central bank will follow with a policy decision on Friday. The Banco de Moçambique unexpectedly cut the bank’s standing lending facility and deposit rates by 50-basis points each to 9.0% and 1.75%, respectively, in June.

The move surprised many economists because inflation increased for the sixth consecutive month in May, primarily as a result of increases in the cost of fruits and vegetables resulting from bad weather earlier in the year. Year on year inflation is forecast to increase towards the latter part of 2013 – mainly due to the exceptionally low inflation recorded during the same period in 2012 – but the International Monetary Fund (IMF) said last week that it expects inflation to remain below 6.0% in the medium-term.

Beyond these two rates decisions, Africa’s economic calendar is comparative light this week. Namibia will release May’s M2 money supply figures on Monday. May’s mining and manufacturing statistics will follow from South Africa on Thursday. Tanzania, Angola, Egypt and Ghana are also expected to report last month’s CPI figures over the coming days.

Matt Quigley writes the Mail & Guardian’s weekly economic preview. You can follow him on Twitter at @mattquigley.

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