/ 20 October 2014

Economic week ahead: Budget statement, inflation data

Economic Week Ahead: Budget Statement, Inflation Data

Next door in Namibia, the central bank’s October rates decision will take centre stage.

Overseas, economists and investors will be paying close attention to corporate earnings reports in America, manufacturing gauges in Europe and growth data in China. Here is your guide.

Finance Minister Nhlanhla Nene’s medium-term budget policy statement is the big item on South Africa’s economic calendar this week. Wednesday’s address in Cape Town will lay out the minister’s broad expectations for spending, revenue and borrowing for the next three years.

The International Monetary Fund (IMF) recently estimated growth of 1.4% for South Africa in 2014, just over half the expansion rate Nene’s predecessor – Pravin Gordhan – estimated in his February budget address.

The country’s diminished growth prospects mean previous revenue estimates are likely to be too high. As a result, government must cut spending, raise taxes, increase borrowing or pursue some combination of the three to keep the country’s books in order. All eyes will be on Nene for answers.

In addition to Nene’s remarks, economists and investors will be on the lookout for last month’s consumer inflation data on Wednesday. Statistics South Africa’s consumer price index (CPI) rose 6.4% from a year earlier in August, but likely slowed to 6.1% to 6.2% year on year growth in September.

Despite the expected moderation, inflation almost certainly remained above the upper limit of the South African Reserve Bank’s 3.0% to 6.0% target band in September for the sixth consecutive month. Core inflation – which excludes food, non-alcoholic beverages, petrol and electricity – rose to 5.8% in August, its highest level in four years.

Elsewhere on the continent, officials at the Bank of Namibia will announce their latest rates decision on Wednesday. Policymakers raised their benchmark rate to 6.0% last month, but will likely hold steady at this week’s meeting.

United States
Housing market reports will dominate America’s data docket this week. The National Association of Realtors will release their tally of last month’s existing home sales on Tuesday. New homes sales will follow on Friday.

Existing home sales – which represent roughly 90% of total US home sales – fell by a larger-than-expected 1.8% in August to a seasonally adjusted annualised rate of 5.05-million units. Low borrowing costs and an improving labour market likely led to an uptick of between 1.0% and 3.0% last month.

Government’s August new home sales report – notoriously volatile due to a small sample size – showed an 18.0% rise to a seasonally adjusted annualised rate of 504 000 units, the largest monthly increase in sales since 1992. Analysts expect September’s pace to come in at around 460 000 units.

Aside from these two reports, America’s economic calendar is particularly light this week. Wednesday’s consumer inflation data and Thursday’s weekly jobless claims figures are the only two additional releases worth noting. The country’s corporate earnings schedule, however, is choc-a-bloc. With earnings season now in full-swing, results are due from 128 of the S&P 500’s companies over the coming days.

IBM and Texas Instruments will report earnings on Monday. Yahoo, Coca-Cola and McDonald’s will follow on Tuesday. Boeing and AT&T will take centre stage on Wednesday. Amazon, GM and Caterpillar step into the spotlight on Thursday. Ford and Proctor & Gamble will close out the week on Friday.

On Thursday, flash readings from the euro zone’s latest consumer sentiment and purchasing managers’indices (PMIs) are likely to generate more grim economic headlines in Europe and, given the region’s economic significance, around the world.

Analysts expect Europe’s consumer sentiment index to slip to -12.0 this month from -11.4 in September. The region’s PMIs are likely to follow suit.  

The euro zone’s manufacturing PMI fell to a 14-month low of 50.3 in September. Markets will be watching October’s first read closely to see if this forward-looking gauge of economic activity falls below the 50-mark separating expansion from contraction.

The region’s services PMI and composite PMI are widely expected to remain above the 50-mark, but not by much. Consensus calls for a preliminary services PMI print of 52.0 –down from 52.4 in September – and an initial composite PMI of 51.5 – down from 52.0 previously.

Individual country reports will also be released on Thursday and, on the whole, are likely to appear as disappointing as the regional gauges. Germany – Europe’s largest economy and industrial powerhouse – is widely expected to report a manufacturing PMI of 49.5, slipping further into contraction territory after last month’s 49.9. The country’s services PMI is likely to deteriorate as well, from 55.7 to 55.0.

On Friday, attention will shift to the United Kingdom’s latest growth figures. Britain’s National Institute of Economic and Social Research estimates that gross domestic product (GDP) growth slowed to 0.7% in the third quarter from 0.9% in the second.

China’s third quarter gross domestic product (GDP) figures will headline a slew of data from the world’s number two economy on Tuesday. Consensus is that the country’s economy slowed to 7.2% growth in the three months to September from 7.5% in the previous quarter.

Industrial production data is likely to show that output rose 7.5% from a year earlier last month, an improvement on August’s 6.9% year on year growth. Retail sales may have risen by 11.9%, year on year, in September, the same rate of growth recorded in the previous month. Urban fixed investment probably rose 16.3%, year to date.

On Wednesday, Japan’s Ministry of Finance will release last month’s trade statistics. Economists surveyed by Market News International expect the data to show a trade deficit of ¥760.6-billion – a 27th-consecutive shortfall – down from ¥949.7-billion in August and ¥943.2-billion in September.

Attention will turn back to China on Thursday for HSBC’s flash manufacturing PMI. Consensus is that the index will remain unchanged at 50.2, just barely above the break-even 50-mark.

Also on Thursday, South Korea’s latest GDP numbers may show that Asia’s fourth largest economy grew 0.8% in the third quarter, up from 0.5% in the three months to June.

Closing out the week on Friday, China will report last month’s property prices. Data from China’s National Bureau of Statistics showed that house prices fell in all but two of the country’s major cities in August.