Economic week ahead: SA repo rate decision

Will the Reserve Bank leave rates unchanged? Will policymakers at the Bank of Japan do the same? Did China’s growth remain unchanged in the second quarter? Is European industrial output on the wane? These are a few of the questions that will preoccupy economists and investors over the coming days. Here is your guide to the week ahead.

The South African Reserve Bank’s monetary policy committee (MPC) will meet to consider interest rates this week. Despite inflation running above the central bank’s target range, most economists expect Governor Gill Marcus and her colleagues to hold-off on a rates rise this month to boost the country’s lacklustre growth prospects.

Eighteen of the 31 economists responding to a recent Reuters’ poll expected officials to leave South Africa’s benchmark repo rate on hold at 5.5% at the conclusion of the MPC’s three day meeting on Thursday. Seven predicted a 25 basis point hike, while six foresaw a 50 basis point rise.

In the run-up to Thursday’s big announcement, markets will keep an eye out for the South African Chamber of Commerce and Industry (Sacci)’s June trade conditions survey results on Tuesday and May’s retail sales figures from Statistics South African on Wednesday. May’s wholesale, motor trade and civil cases for debt reports will follow from the agency on Thursday.

Elsewhere on the continent, the Bank of Mauritius’ monetary policy committee will announce their benchmark rate decision for July on Monday. Angola and Senegal are expected to report June consumer price index (CPI) readings between Tuesday and Thursday. Botswana, Morocco and Namibia may also report June inflation between Wednesday of this week and Tuesday of next.

Further afield, President Jacob Zuma will meet with Brazil’s Dilma Rousseff, Russia’s Vladimir Putin, India’s Narendra Modi and China’s Xi Jinping in Brazil on Tuesday to discuss a new BRICS development bank, reserve fund and other topics.

United States
On Tuesday, Federal Reserve Chair Janet Yellen will deliver her semi-annual remarks before the US Senate Banking Committee on the central bank’s outlook for the world’s largest economy and answer questions about the Fed’s plans for winding down stimulus. 

On the data front, Tuesday will also bring America’s latest retail sales figures. Consumer spending accounts for roughly 70% of the US economy, so markets will watch this release closely. Economists widely expect that sales accelerated in June from a month earlier, likely rising 0.6% from May to June.

On Wednesday, Janet Yellen will remain centre stage as she testifies before the US House’s Financial Services Committee while, on the data calendar, attention will turn to the Federal Reserve’s June index of industrial production. Consensus is that the index rose 0.4% on a monthly basis after posting a strong 0.6% rebound in May from April’s 0.3% fall.

On Thursday, US Census Bureau data is likely to show that the pace of housing construction rose to a seasonally adjusted annualised rate of 1.026-million units in June from 1.001-million in May. If confirmed, this would mark the fourth gain in the past five months. The number of construction permits – an indicator of future construction – likely rose to 1.038-million in June, from 991 000 in May.

Finally, on Friday, the Reuter’s/University of Michigan’s consumer sentiment index is likely to rise to 83.0 from 82.5 in June.

Eurostat will release the euro zone’s latest industrial production figures on Monday. Following last week’s disappointing data from the region’s three largest economies, analysts expect a grim report.

Germany’s industrial output dropped 1.8% from April to May, its biggest decline in two years. French production fell 1.7% over the same period. Italian production fell 1.2%, its sharpest drop since November 2012.

Monday’s data will probably show that industrial output in the 18-nation currency bloc as a whole declined by 1.2% in May, renewing concerns over the continent’s overall growth in the second quarter.

Mid-week, Germany’s ZEW Institute will release its closely followed German and broader European sentiment gauges. Consensus is that both indices will probably show slight improvements, but on-going concerns about the situation in Ukraine may keep positivity supressed.

On Thursday, final inflation figures for June are likely to confirm preliminary estimates that consumer inflation in the euro zone edged up a mere 0.5% last month, indicating that consumers purchases remain woefully anaemic in the still troubled region.

Monday will be a busy day in Asia. Japan is set to report industrial production and capacity utilisation figures and India will release import, export, trade balance, consumer and wholesale inflation reports. The Bank of Japan (BOJ) will also begin a two-day policy meeting.

Consensus is that policymakers at the BOJ will leave rates unchanged. The central bank unleashed an unprecedented wave of stimulus in April 2012, at the time pledging inflation-stoking asset purchases to accelerate inflation to 2.0% within two-years. It has since stayed the course.

Adjusting for the effects of April’s sales tax hike, Japan’s core nationwide consumer price index (CPI) rose 1.4% from a year earlier in May. Although inflation may decelerate over the next few months, most economists expect the BOJ to maintain its forecast for around 2% inflation in the 2015 fiscal year on Tuesday, signalling to markets that no additional stimulus is forthcoming in the near term.

Following Japan’s announcements, attention will shift to China on Wednesday for second quarter growth figures. Markets expect the data to show that the world’s number two economy expanded by 7.4%, holding steady from a year earlier. Beijing is targeting growth of 7.5% for the year as a whole.

China’s latest retail sales, industrial production and urban fixed asset investment data are also scheduled for release on Wednesday.

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