A series of central bank decisions will dominate Africa’s economic calendar this week. Policymakers in Angola will announce their July rates decision on Monday followed by Ghana and Zambia on Wednesday and Egypt on Thursday.
The Banco Nacional de Angola left its benchmark interest rate unchanged at 10% for the fifth consecutive month in June and is likely to do so again this week. Officials may be forced to tighten policy later in the year, however, as an impending influx of liquidity in the country’s banking sector – resulting from a new foreign exchange law on oil companies – and an ambitious public spending programme add to inflationary pressures resulting from a weakening exchange rate and food price pressures.
The Bank of Ghana’s monetary policy committee raised its policy interest rate by 100-basis points to 16% at its May meeting. Although no further increase in rates is expected following this week’s meeting, more tightening could occur later in the year. Ghana’s consumer inflation rate continued to increase in June, rising to 11.4% from a year earlier last month from 11.1% in May.
The Bank of Zambia raised its benchmark policy rate by 25-basis points for the second time in two months in June, in the face of rising inflation. Inflation remained unchanged in July, and most analysts expect officials to leave the country’s benchmark rate on hold at 9.75% this week.
Officials in Egypt left the central bank’s deposit rate unchanged at 9.75% and overnight lending rate steady at 10.75% in June. No changes are expected this month either. Generous aid pledges from Saudi Arabia, the United Arab Emirates and Kuwait in the wake of president Mohammed Morsi’s ouster should ensure that Egypt has enough foreign exchange reserves to provide import cover for the next few months. As a result, the currency will probably not depreciate as rapidly and inflation will not rise as quickly.
A meeting of the US Federal Reserve, this month’s jobs report and a slew of corporate earnings reports will make for a big week in the world’s largest economy.
The Federal Reserve’s policy arm, the Federal Open Markets Committee, will hold a two-day meeting on Tuesday and Wednesday. Although no policy action is expected, economists, investors and policymakers around the world are hoping that officials will provide more clarity on what could trigger a reduction of the central bank’s massive stimulus programme. A tapering of stimulus is expected and inevitable, but markets fear that a premature pullback could undermine a still fragile recovery.
The highlight of this week’s data calendar will be Friday’s monthly payrolls reports. Last month’s data were exceptionally strong and the two previous month’s data were revised upwards.
The job market’s recovery is seen by markets as a key indicator of the Federal Reserve’s future plans. Officials have said that they will keep interest rates at historic lows – where they have sat for more than four years – until America’s unemployment rate drops to 6.5% from 7.6% currently.
Analysts surveyed by Reuters expect Friday’s report to show that employers added 185 000 positions in June, down from 195 000 in May. The unemployment rate is expected to drop slightly to 7.5%.
Beyond the Federal and economic calendar, second quarter earnings season will continue this week. Out of the 259 of S&P's 500 companies that have reported earnings thus far, 56% have exceeded analysts’ expectations. An additional 131 companies will report results this week.
A raft of European economic indicators exceeded expectations last week, raising hopes that the eurozone may finally be on the cusp of a recovery. Purchasing managers’ indices (PMIs) pointed to increased activity in the continent’s manufacturing and services sectors for the first time in 18-months.
The continent is still far from economic vitality, but its improving prognosis has given officials at the European Central Bank (ECB) more time to weigh their options. As a result, consensus is that policymakers will leave rates unchanged at their policy meeting on Thursday. Officials at the Bank of England, which will also meet on Thursday, are expected to do the same.
The ECB cut the central bank’s policy rate to a record low in May and Mario Draghi, the bank’s chief, pledged earlier this month to keep rates low, or even cut them further, if necessary. Markets will be looking for clarity on what exactly this means and whether other members of the bank’s governing council share his views on future policy.
Despite the cause for optimism provided by the PMIs, the International Monetary Fund (IMF) said last week that continuing government efforts to put their fiscal houses in order could cut European growth by up to 1.25% this year. As a result, officials forecast another 0.6% contraction for the 17-country common currency bloc this year before a return to growth of 0.9% in 2014.
In addition to the risks to recovery posed by government spending pullbacks, the IMF urged fast action to fix the continent’s still vulnerable banking sector, something vital to the revival of credit extension to small- and medium-sized enterprises across the continent. Four of the continent’s largest banks – Barclays, Deutsche Bank, UBS and Spain’s Banco Santander – will report second-quarter earnings on Tuesday of this week.
Japan – the world’s number three economy – kicked off Asia’s economic week on Monday with a report of last month’s retail sales. June’s household spending and industrial output figures will follow on Tuesday.
Retail sales rose 1.6% last month from a year, although lower than the 1.9% increase that economists had forecast, the figures were a definite improvement on May’s 0.8% uptick.
Economists surveyed by Market News International expect the ministry of internal affairs and communications’ data to show that household spending increased 1.3% in June from a year earlier, up from a 1.6% year-on-year decline in May.
The ministry of economy, trade and industry’s latest output figures are expected to show that industrial output fell 1.5% from May to June, the first fall in five months. Second-quarter output – scheduled for release simultaneously – probably rose by about 2%, quarter on quarter.
On Wednesday, economists and investors will shift their attention to the world’s number two economy. Markets are expecting further confirmation of China’s economic slowdown.
Data from the National Bureau of Statistics are expected to show that the country’s official manufacturing PMI – compiled by the China Federation of Logistics and Purchasing – fell into negative this month. Consensus is for a headline reading of 49.8, down from 50.1 in June, and just below the 50-mark separating expansion from contraction.
A preliminary print of China’s other PMI, from HSBC/Markit, released last week, fell to 47.7 – less than analysts had expected. Final numbers will be released on Thursday. If last week’s figure is confirmed, it will mark the lowest level observed in 11-months.