Joseph Hogue: Debt auctions in Italy and Spain went fairly well last week and tensions have come down a little with lower yields in the peripheral European countries. Despite this, end-of-year positioning and light volumes could mean large swings as the market reacts to headline risk.
The U.S.economic picture continues at an enviable pace compared to Europe with initial claims for unemployment down to 366,000 and fourth-quarter GDP forecasted around 2.5%.
Though retail sales did not come in as strong as expected, they still showed a positive trend with an increase of 0.2% on a month-over-month basis.
The HSBC Flash PMI for China (NYSEARCA:FXI) did not rattle the market as it did in previous months. Though the reading of 49.0 was below the all-important 50.0 designation and signals weak economic growth in coming quarters, the number was an increase over the 47.7 reading last month.
A potential overhang in the markets remains the “threatened” reassessment of credit ratings in Europe by Standard & Poor’s, Moody’s and Fitch. Though many have wondered if the ratings agencies are still relevant, a downgrade of ratings in Europe has the potential to spike volatility.
Euro zone PMI numbers were a positive surprise last week with an increase to 47.9 from a previous 47.0, which hints to a leveling of the stalled economic picture, although the number still shows contraction.
Poland (NYSEARCA:PLND) starts a data-heavy week with industrial output and PPI. Wholesale prices are forecast to increase only marginally — to 8.6% from 8.5% on an annualized basis — while industrial output should cool to around 5.7% from 6.5%.
Colombian (NYSEARCA:GXG) industrial production is also forecast to moderate at an annual pace of 4.1% from a previous 5.2%. The decrease in activity could lead to decreasing inflationary pressures and persuade the central bank to hold rates steady. The country’s central bank has been one of the few within the region to continue its rate increases through the global economic crisis.
Also in Colombia, retail sales are reported on Monday with expectations to the downside at 7.5% versus the prior reading of 8.1% growth on an annualized basis. A group of representatives from unions, business and the government agreed late last week to an increase in the minimum wage of 5.8% over this year. This is the first time in six years that the representative groups have agreed on the annual rate increase without the government having to set it by decree.
Chile (NYSEARCA:ECH) releases its Quarterly Monetary Policy Report on Monday. The Central Bank increased its holding of foreign currency by $12 billion to a total of $38 billion this year to stem appreciation in the peso. These reserves could be used to provide liquidity or prop up the peso if the crisis in the global markets continues. The government has recently admitted that its growth target of 5.0% next year may be difficult to achieve if global growth slows further.
South Africa (NYSEARCA:EZA) reports leading economic indicators against a reading of 130.1 a month prior. Bonds fell last week as inflation increased to an almost two-year high in November taking rate decreases off the table for the central bank. This could make it difficult for the government to support the economy against the global picture.
Brazil’s (NYSEARCA:EWZ) current account deficit is expected to increase next week to minus $6.5 billion from a prior reading of minus $3.1 billion. The government has reversed a previous trend earlier this year and is aggressively cutting rates to increase economic growth. The Selic, the bank reference rate, has been lowered 1.5% since August to 11.0%. President Rousseff insisted last week that the country would meet its 5.0% growth target next year and that inflation would moderate to around 6.5%.
Poland releases consumer inflation results with CPI on Tuesday. Prices are expected to show a slight increase to 3.0% from 2.8% on an annualized basis.
Mexico (NYSEARCA:EWW) is expected to show a decline in the pace of retail sales with 3.5% growth against last month’s 4.7% annualized growth.
Argentine industrial production is expected to decrease to 3.8% (y-o-y) on from 4.1% on a non-seasonally adjusted basis.
WSP Holdings (NYSE:WH) reports earnings before the market opens on Tuesday. The company is a Chinese manufacturer of casing, tubing and drill pipes used for oil and gas exploration, drilling and extraction. The company announced on December 13 that the board of directors had formed a special committee to evaluate the interest by H.D.S. Investments of taking the company private at a price of $0.60 per share. Shares closed on Friday at $0.48 each.
Consumer inflation in Malaysia (NYSEARCA:EWM) is expected to remain steady at 3.3% in November against the previous month’s reading of 3.4% annualized. Though the global picture has reduced demand pressures, supply disruptions from flooding in Thailand have increased pricing pressures for food products. Inflationary pressures kept the central bank from cutting rates at its last meeting with a policy rate of 3.0%.
Brazil reports its weekly inflation numbers a day before the central bank releases its inflation report. Expectations are for a slight increase in month-over-month pressure to 0.56% from 0.46% previously.
Argentina (NYSEARCA:ARGT) reports its Current Account Balance on Wednesday in a note that is sure to focus the attention of the country’s investors. The balance is expected to decrease dramatically from $1.55 billion to just $3.37 million. The government recently instituted strict controls to stem capital flight and halt the depreciation in the peso which is leading to the second highest inflation rate in the region.
Brazil’s Central Bank releases its inflation report as the recent depreciation in the Real threatens to increase prices. Inflation through November was reported at 6.6% on an annualized basis, which is higher than most countries in the region. Inflation over the last twelve months within Latin America has been moderate and generally within central bank targets with: Colombia (3.3%), Ecuador (5.0%), Chile (3.8%), Mexico (3.5%), and Peru (4.5%). Argentina and Venezuela are the exceptions within the region with estimated inflation of 22.6% and 25.4% respectively.
Brazil also reports unemployment on Thursday with expectations for 5.7% from last month’s 5.8%.
Colombia is expected to show an uptick in economic growth with 6.1% annualized growth against the last reading of 5.2%. This follows Peru’s (NYSEARCA:EPU) report last week that the economy increased by 5.1% on an annualized basis in October.
Poland finishes its week of reports with expectations for a decrease in retail sales to 10.5% annualized growth from 11.2% the month prior.
The Central Bank of Turkey (NYSEARCA:TUR) meets on Thursday to decide its policy target rate. Economic growth this year is forecast above 8.0% and inflationary pressures around 6.0% have kept the central bank from cutting rates in response to slowing global growth. The bank is widely expected to maintain rates at 5.75%.
The lingering effect of this year’s floods is seen decreasing industrial production in Thailand (NYSEARCA:THD) to 12.5% from 24.4% on an annualized basis. While consumer price inflation, also reported on Friday, should hold steady at around 5.3% from last month’s 5.4% on an annualized basis. The country’s worst flooding in 50 years caused factory output to fall by 36% in October and resulted in supply disruptions in many industries across the globe.
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