Economic data set to shake-up the week | Fin24

Economic data set to shake-up the week

Jan 18 2016 07:00
Giacomo Bonavera


The week is set to start off slowly today as the US observes Martin Luther King Day. But as the Americans go to bed on their day off, markets will be hyped in anticipation of the Chinese GDP figures due to be released on Tuesday morning at 4am (South African time).

The Chinese GDP will likely be perceived as a proxy for the health of the global economy and worse-than-expected figures will impact negatively on both the rand and the JSE.

Positive figures, on the other hand, coupled with last week’s better-than-expected Chinese trade data, will have a positive impact on market sentiment and potentially end the self-perpetuated fear-spiral that has gripped the markets recently. However, low trading volumes (due to the public holiday in the US), could exacerbate volatility.

Locally, the week ahead will provide some clues as to the effect of a weaker rand on domestic prices as inflation data is expected to be released on Wednesday. A higher-than-expected inflation figure will increase market expectation for a Reserve Bank decision to increase interest rates at its next meeting in an effort to stabilise the plummeting rand and prevent even higher prices for local consumers.

Low oil prices, caused by a supply glut and weak global demand, may reflect in a low inflation reading. However, the persistent depreciation of the rand may cancel out the effect of low oil prices.

Also to be released on Wednesday are the local retail sales figures, and the US Crude Oil Inventories.

If data is not in line with expectations, the Crude Oil Inventories will shake up the rand and South African equities due to the strong connection of our economy to commodities. Any developments in the persisting oil glut will cause a stir.

Europe’s Central Bank (ECB), is expected not to add further monetary stimulus at its press conference on Thursday. The ECB’s real test will be on March 10 when the central bank is expected to release its initial 2018 growth and inflation forecasts.

Throughout the week volatility is never far as important announcements and data from the developed world litter the economic calendar.

These include:

·      Tuesday: GB CPI and EU ZEW Economic Sentiment.

·      Wednesday: GB Employment data and US CPI & housing figures.

·      Thursday: US Unemployment figures.

·      Friday: EU PMI figures.

Should the advanced economies’ data not meet market expectations, investors are more likely to be spooked about the health of the global economy, with a slowdown in China – the largest emerging economy – and the collapse in oil prices.

As an emerging market, and a commodity-linked economy, the impact of Chinese and oil data is expected to send shockwaves through the South African market.

Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.


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