Five things to know before the market trades this week, Jan 12-18

A man looking at a condominium at Paisir Ris Drive 1. A spate of data on the Singapore economy's performance in December, from SRX Property's flash figures for condominium resale prices to private housing rentals, is set to be released this week. --
A man looking at a condominium at Paisir Ris Drive 1. A spate of data on the Singapore economy's performance in December, from SRX Property's flash figures for condominium resale prices to private housing rentals, is set to be released this week. -- ST PHOTO: DESMOND WEE

1. Europe's rocky road to QE

A landmark legal opinion this week will remind the European Central Bank (ECB) of the limits it faces as it advances towards massive money printin to boost the flagging economies of the eurozone.

With expectations high that the ECB is on the verge of buying government bonds with new money - aka quantitative easing (QE) - to shore up the economy, an influential adviser to Europe's top court will give his view on Wednesday (Jan 14) on a challenge by a group of Germans to an earlier ECB bond-buying programme. If he shares any of the concerns of Germany's constitutional court, which referred the case to European judges, it would be significant.

Alain Durre, an economist with Goldman Sachs, said this could lead to the ECB setting a fixed limit on its bond-buying plans or to take priority over other investors when it buys state bonds.

It is the latest chapter in a long-running and increasingly bitter dispute about QE between the ECB and Germany, the largest member of the 19-country bloc, that is likely to limit the size or scope of such a programme.

As the debate continues, the euro zone economy is all but grinding to a halt. Germany is expected to announce modest growth on Thursday (Jan 15) for last year.

2. US widens gap with Europe

Fresh data on rising employment with the as well as retail sales on Wednesday is set to show just how much its recovery has overtaken Europe.

The first Beige Book of the year will likely report continued economic expansion. The December report was particularly upbeat on strong consumer spending and widespread employment growth. The Beige Book by the US Federal Reserve compiles anecdotes on wages, retail activity, manufacturing and other economic activity.

The Fed, or US central bank, will also release industrial production data on Friday. Manufacturing is the biggest sector in the data, but the mining sector's performance in December, which includes oil and gas extraction, will garner close attention. With oil prices plunging, companies are closing down drilling rigs and rethinking expansion plans.

3. Deflation fears in Europe

Oil's second-biggest collapse on record - which has taken the price of a barrel of benchmark Brent crude to around US$50 from US$115 in the middle of last year - is also raising fears of deflation in Europe

Oil is proving to be a mixed blessing for the stuttering global economy. While it is good news for a slowing China and should put more money in the pocket of motorists around the world, data out last week showed cheap oil has sent prices in the eurozone falling fo the first time since 2009, increasing the burden on countries with heavy debts. Apart from that, deflation or falling prices makes consumers and busineses delay spending and makes it harder for governments to stimulate a flagging economy.

British inflation data will be watched on Tuesday, with analysts betting it will hit a fresh 12-year low below 1 per cent.

4. Russia's credit rating downgraded to junk?

Plunging oil has also compounded an economic and currency crisis in neighbouring Russia, one of the world's biggest oil exporters, locked in conflict with neighbouring Ukraine.

Ratings agency Standard & Poor's has said it will conclude a review of Russia's credit status by mid January. Any downgrade would label Russian bonds as "junk" for the first time in more than a decade.

5. Filling in the picture for Singapore?

This week will a spate of data on the Singapore economy's performance in December - from SRX Property's flash figures for condominium resale prices on Tuesday to private housing rentals and retail sales om Thursday to non-oil domestic exports on Friday.

We already know the overall Singapore economy expanded less than economists estimated in the last three months of 2014 so the numbers for release this week will paint in the picture and help form an outlook going forward.

Source: Reuters, Wall Street Journal