Only one issue to focus on: the credit crunch, the looming recession, and the US Federal Reserve’s reaction to it by a rate cut, and what happens in the various sectors of the financial markets.
Now that sounds like several issues, but in reality they are not: they are just various parts of the great unholy mess now destroying value here and around the world.
From cars, to airlines, to retailing, to manufacturing, oil and resource companies: you name it, they are in the firing line, or have been belted. In contrast financial shares and groups are probably through the worst of their hammering, until we start getting a spate of corporate collapses triggered by the grinding pressures of a recession.
So, for the week ahead, focus will be on the sharemarkets, commodity prices, and the Fed’s two day meeting that will produce a rate cut in the early hours of Thursday morning, our time (somewhere around 5.15 am).
And a series of other figures on consumer spending, third quarter growth, new home sales and prices, plus consumer confidence will all be released and confirm the sorry state of the US economy.
Economists reckon the Fed will cut its Federal Funds rate by another 0.25% to 1.25% on the growing evidence that the US economy has entered a serious recession. (October’s employment report out next week, will confirm that with early estimates suggesting the number of jobless jumped 200,000 and the 6.1% unemployment rate last month rose).
US futures markets have fully price in a rate cut of 0.50% this week, to 1%.
If that happens, the Fed funds rate would be back where it was in late June 2003, when it was at 1% – which was then the lowest in almost 40 years and signalled the then fear of deflation in the US as prices fell in the wake of the 2001-02 recession.
On top of the Fed decision there’s the first reading of the September quarter’s gross domestic product (growth figures).
It’s likely to show a significant fall in GDP signalling the start of a recession led by a slump in consumer spending. US growth contracted by around 0.2% (after being up 0.6% in the first two of the usual three readings) in the December quarter of 2007, but then bounced back in the first half of the year.
It’s very like GDP could have shrunk 0.50% in the quarter with retail sales and consumer credit all falling sharply throughout the three months and industrial production tumbling.
The first reading only estimates the impact from the trade account, that will be released in a couple of weeks’ time and will be included in the second and third readings as more up to date information is released.
As well, figures for new US home sales, house prices, consumer confidence, personal income and consumption will all be released and are all likely to make depressing reading.
The Bank of Japan also meets to consider interest rates and some economists are now tipping a cut of 0.25% from 0.50% because of the very sharp fall in exports, production and the damaging declines in the past couple of weeks on the Tokyo Stock Exchange.
The surging yen (the US dollar hit a 13 year low against it last Friday) is damaging exports and making the Japanese economy worse.
The US third quarter reporting season continued this week and there will be another collection of sorry and lower than expected results from the likes of oil majors Exxon, Chevron, Telco, and Verizon; food giant Kraft Foods, consumer products giant Procter & Gamble, insurer MetLife and US Steel Corp.
In London oil giants PP and Shell will be reporting, in Frankfurt reports will come from Lufthansa, Bayer, Deutsche Bank and Volkswagen. In Paris Alcatel-Lucent, France Telecom, Michelin, L’Oreal and Pernod Ricard will be report. All will be watched to see if the slowing economy is having an impact..
The week sees a couple of high profile appearances from senior Fed officials, with Chairman Ben Bernanke scheduled to address a symposium in California on the mortgage meltdown, the economy and public policy.
Later in the week, Federal Reserve Bank of San Francisco President Janet Yellen will speak at the conference, Thursday night, our time.
In Australia, figures on skilled vacancies and private sector credit from the Reserve Bank and new home sales figures from the Housing Industry Association will be released: all will be weak, consistent with the slump in growth now underway.
But markets will be looking to end the misery of October, which has once again proven itself to be the miserable month of the year.
America’s Stock Trader’s Almanac calls October the jinx month because of the crashes in 1929 and 1987, as well as the slide on October 27, 1997, the back-to-back massacres in 1978 and 1979 and Friday the 13th in October 1989, and now, in 2008, the entire month.
Here it’s no better. A month to forget about and quietly boast that you survived when we emerge from the misery
MONDAY:
Housing Industry Association trades report for September quarter; Annual meetings including Bendigo Bank, Transurban, Sunshine gas, Specialty Fashion group and Argo Investments.
TUESDAY:
National Australia Bank’s quarterly business survey; Annual results for BT Investment management; third quarter figures for Austar United Communications; AGMs for Crown and Consolidated Media Holdings, Perpetual and Nick Scali, NIB, Suncorp Metway, Worleyparsons, Billabong, Envestra and Futuris; US Fed’s two day meeting starts tonight, our time.
WEDNESDAY:
Killed vacancy figures for October from the Federal Department of Workplace Relations; ST George Bank’s last financial result; mining conference starts in Brisbane’; AGMs for Fosters, Macquarie Media Group, RP Data, Cellnet, Super Cheap Auto Group, Biota, Dexus, Noni B and Glouces
