Economic week ahead: Mind the banks
Central banks are the institutions to watch this week. Among others, the European Central Bank (ECB), Bank of England (BOE), Bank of Japan, Central Bank of Egypt and Central Bank of Kenya will announce policy decisions over the coming days.
As their decisions roll in, economists and investors the world over will be keeping a nervous eye on developments in Ukraine.
Here is your guide.
South Africa’s economic week will begin on Monday with August’s manufacturing purchasing managers’ index (PMI) from the Bureau for Economic Research and last month’s vehicle sales figures from the National Association of Automobile Manufacturers of South Africa.
The PMI’s headline number is all but certain to signal continued contraction and weak vehicle sales figures will likely provide further evidence that the country’s consumers, confronting higher interest rates and a tough labour market, are under strain.
Also on Monday, policymakers at the Central Bank of Egypt will announce their September rates decisions. Officials raised rates at their last meeting in July, but are likely to maintain the status quo this week as they balance concerns over rising inflation against low growth.
Inflation rose 3.1% in July, the highest monthly increase since January 2008. The country’s economy grew by 1.2% in the first half of 2013/14 and is forecast to grow between 2% and 2.5% for the year as a whole, a rate too low to meaningfully reduce widespread unemployment.
On Wednesday, attention will shift to the Central Bank of Kenya. Policymakers left rates on hold in July, but may not be able to sit on their hands much longer.
In July, consumer inflation rose above the central bank’s target range for the first time since October of last year. Although headline inflation is likely to moderate in September as a result of positive base effects, price pressures will remain elevated throughout the remainder of the year.
Elsewhere on the continent, this week’s data calendar is extremely light. Beyond July money supply updates from Kenya, Morocco, Namibia and, possibly, Uganda, no major economic releases are scheduled.
Tuesday’s release of monthly manufacturing survey results by the Institute for Supply Management (ISM) is the first big item on America’s data calendar this week. Economists expect the ISM’s composite index to have fallen to 56.8 in August from 57.1 in July, the highest headline number observed since April 2011. Any number above 50.0 indicates expansion for the sector.
On Wednesday, attention will shift to July’s factory orders report from the US Commerce Department. Consensus is that orders surged around 11% from June.
On Thursday, America’s latest trade figures will likely show that the country’s trade gap swelled to $42.3-billion in July from $41.5-billion in June. The ISM’s non-manufacturing index, scheduled for release later in the day, will probably show that the US services industry continued a healthy expansion in August. Economists surveyed by Bloomberg expect a headline reading of 57.5, well above the 50-mark separating expansion from contraction.
Closing out the week on Friday, the US Labor Department will release August’s monthly jobs update. Analysts widely expect a positive report. Consensus is that nonfarm payrolls rose by 230 000 last month, up from a 209 000 gain in July. Private payrolls likely rose by 220 000 and the country’s unemployment rate probably fell to 6.1% from 6.2% previously.
Policy-setting meetings at the ECB and BOE are the big items on Europe’s economic calendar this week. Both institutions will announce their decisions on Thursday.
Europe’s lacklustre recovery ground to a halt in the second quarter of this year and the region’s already tepid growth prospects have been hampered further by the escalating conflict in Ukraine. Making matters worse, inflation in the eurozone dropped to a five-year low of 0.3% in August.
Against that grim backdrop, the question for most economists now is no longer if the ECB will enact further stimulus measures, but when. Although few economists believe rate cuts or quantitative easing measures are on the cards this week, recent remarks by ECB chief Mario Draghi at the US Federal Reserve’s annual Jackson Hole conference suggest that action may come sooner rather than later.
Draghi’s counterpart at the BOE – Mark Carney – faces a different dilemma entirely. Increased signs of strength in the UK’s economy have fueled speculation that Carney and his colleagues may be forced to tighten monetary policy earlier than previously pledged. Two of the bank’s monetary policy committee members voted to raise the UK’s benchmark rate last month. Current consensus is that a majority of their peers will swing to their position by early next year.
Beyond these two meetings, markets in Europe and elsewhere will be keeping a nervous eye on developments related to Ukraine over the coming days. European Union leaders on Sunday gave Russia a week to reverse its aggressive course in Ukraine or face another round of sanctions. Their ultimatum followed a warning from Ukraine’s President Petro Poroshenko over the weekend that his country is on the brink of full-scale war with Russia.
Asia’s economic week kicked off on Monday with manufacturing data from the world’s number two economy. China’s National Bureau of Statistics reported that the country’s official manufacturing PMI remained in expansion territory, but fell from a 27-month high in August.
The headline PMI figure slipped to 51.1 from 51.7 in July. Sub-indices covering output, employment, new orders, delivery time and material inventories all retreated, raising concerns that China’s economy may struggle as 2014 draws towards a close.
A separate, private measure of factory activity showed similarly disappointing results on Monday. HSBC’s final manufacturing PMI for August fell from 51.7 in July to 50.2 in August.
Commenting on the results, Hongbin Qu, chief China economist and co-head of Asian economic research at HSBC said, “We think [China’s] economy still faces considerable downside risks to growth in the second half of the year, which warrants further policy easing to ensure a steady growth recovery.”
As the week rolls on, attention will turn to the Reserve Bank of Australia on Tuesday and Bank of Japan on Thursday. Neither institution is expected to change rates. Nevertheless, economists and investors will be on the lookout for policymakers’ thoughts on the direction of both economies.