OPEC and the US Federal Reserve meet this week. The US car industry bailout will have to be organised this week, otherwise one of or both GM and Chrysler will go bankrupt.
With the US recession deepening and no sign of any improvement in bank lending, the decision by the Fed to cut rates will only have symbolic interest.
The Fed is expected to cut its Federal Funds rate from 1% to 0.50%. The actual market cash rate is a lot less than 0.50%, reflecting the ongoing slump in the US economy, the need for investors for a safe haven for their cash and the disappearance of inflation.
The AMP’s Dr Shane Oliver says the real point of interest from the two day Fed meeting starting Tuesday night, our time, is whether the Fed formally announces a shift to quantitative easing (i.e. where it actually targets higher money supply and credit growth and starts buying Treasury bonds and notes to inject more money into the economy).
He says recent moves by the Fed to start buying private securities without using funds from Treasury Bond issuance would suggest that it has already moved in this direction. It may even start to buy US Treasury Bonds.
The US will also see November figures for data for industrial production, housing starts, consumer prices and a couple of business surveys released.
The Bank of Japan also meets to consider interest rates. While the market expects no change, a move back to zero interest rates would not be a surprise.
Chinese November data for industrial production will be released today and will likely show extreme weakness, with annual growth falling to around 4% or 5% masking an actual contraction in production in the month. It was 8% annual in the year to October.
The Bank of Japan releases its Tankan survey of industrial company sentiment.
In Australia, the Reserve Bank release the minutes from its last rate setting meeting on December 2. Data for housing starts. New home sales and skilled vacancies will be released.
The OPEC meeting is likely to see another cut to oil production but given the slump in global demand it will be more symbolic than realistic.
There’s still a lot of cheating going on and the existing cuts of 2 million barrels a day haven’t been met, according to oil industry consultants.
OPEC, which supplies around 38% of world crude oil supplies, has called on non-members to play a role in reducing output to stem the sharp slide in crude prices of the last five months.
Russia said last week that it was ready to join forces with OPEC to stem the plunge in prices and could even become part of the oil cartel if membership was in Moscow’s interests.
Russia ranks alongside Saudi Arabia, de facto leader of OPEC, as the world’s largest oil exporter.
But the Russian economy has slipped into recession, the country’s financial system is strained, bankruptcies are rising, and tens of billions of dollars have been spent supporting the currency and the banks to little avail. It’s doubtful that Russia could sustain a production cut and protect its currency and economy.
Russian production is falling because of poor technology, old fields and under-investment in the past. Any cut in output would be natural. The plunge in oil prices by more than $US100 a barrel has hurt every OPEC country, with Russia feeling more pain than most.
Complicating matters will be the default of Ecuador on its foreign debt on Friday.
Reuters reported on Saturday that:
"Ecuador declared default on its 2012 global bonds on Friday over charges the debt was illegally contracted by past governments, leaving investors to deal with its second debt default in less than a decade.
"President Rafael Correa’s decision to not pay a $31 million coupon on the government’s 2012 bonds means the country’s two other global bond issues due in 2015 and 2030 are also considered in default, according to cross-default clauses in the contracts."
The country will quite likely try and round up support from its fellow OPEC members at this week’s meeting.
Oil prices jumped more than 10% last week in expectation of an OPEC cut. Prices will fall after the decision.
Besides the flow of figures and the Fed meeting, the fragile health of the US banking industry will be tested this week by Morgan Stanley’s and Goldman Sachs’ 4th quarter and 2008 full year results this week.
Analysts expect a tough fourth quarter for the two banks, and Goldman is widely expected to post its first quarterly loss since going public in 1999. A figure of more than $US2 billion has been tipped by analysts.
Morgan Stanley is tipped to wind up in the red for the second time in the past four quarters.
In Australia, the major corporate events will be the deadline of today for the refinancing plans for Centro Properties and Centro Retail Trust and the annual meetings of the ANZ and National Australia Banks.
MONDAY:
Lending finance figures from the ABS; carbon emissions targets released; deadline for Centro Properties and Centro Retail Trust refinancings; updated commodity export estimates from ABARE for 2008-09 financial year.
TUESDAY:
Fed’s two day meeting starts in Washington tonight, Australian time; ABS dwelling starts for September quarter; RBA board minutes for December 2 meeting.
WEDNESDAY:
Fed’s meeting continues in Washington: decision at 6.15 am Thursday, Australian Time; ABS data on November’s imports.
THURSDAY:
Ten Network AGM in Sydney; ANZ AGM in Brisbane; NAB AGM in Melbourne.
FRIDAY:
AGMs for Incitec Pivot and Keycorp.
