This week will be dominated by a trifecta of major announcements here and in the US: the Australian Consumer Price Index for December quarter and 2008, the Fed meeting in Washington, and the first reading on economic contraction for the US’s 4th quarter gross domestic product.
And we will see more 4th quarter financial results from major US companies and the news won’t be nice as we saw last week when major groups like General Electric, Intel and Microsoft reported poor profits, or warned of worse than expected figures to come.
Job cuts were also revealed by the likes of Microsoft and Intel plus a slew of other companies in the US and abroad.
BHP Billiton led the way internationally and the oil services giant, Schlumberger added 5,000 in losses late Friday night, our time.
Over 80,000 other job cuts were revealed overnight by a string of companies in the US and Europe in banking, insurance, steel, paper, cars, telecoms and the media.
But the talk of rate cuts in the US is now over after the December meeting of the Fed which trimmed its Federal Fund Rate to a record low range of 0% to 0.25% and then indicated that it would begin a program of quantitative easing.
US economists and analysts are now looking for the Fed this week to shed more light on this approach following its meeting on Wednesday, which will be done through buying private sector securities and possibly government bonds to stimulate demand for credit across all sectors.
The Fed will release its usual post meeting statement around 6.15 am Thursday, Australian time. This week’s meeting starts Tuesday night, our time.
It will be also be closely watched for the type of language used by the Fed to get any sort of indication as to how it sees the outlook, which remains confused, to say the least.
The promise to maintain rates at current levels for a ‘long’ time will be repeated in some form of words to get the message across to some doubtful analysts who still see rates rising in the not too distant future.
Inflation won’t be mentioned: in fact the rising chances of a dose of price deflation will feature.
There are still quite a few people in the US and around the world worried that the boost to government debt issuance and spending will boost inflation: it won’t, and indeed, if it happens, it will be because there is rising levels of economic activity in the various economies, which is just what the authorities will want to see.
The Fed meeting will come ahead of the report Friday on 4th quarter growth. It is the first of three readings and will be unpleasant reading.
Consensus estimates from surveys of US economists say the economy shrank by an annual 5.5% in the quarter, which would be the deepest since 1982. The economy shrank 0.5% in the September quarter and has been in a recession now since December, 2007.
Some gloomier estimates put the slump at 6% or more, which is heading towards a very, very severe recession.
The report will show damage to all sectors of the economy with consumption, especially housing and construction badly hit, and credit.
That’s why the Fed has pledged to support auto, student, credit card and small business loans through a $US200 billion program — the Term Asset-Backed Securities Loan Facility, or TALF – due to start next month.
Under TALF, the US Treasury has invested $US20 billion to underwrite the Fed’s investment.
Officials have said the program could be expanded to cover securities tied to commercial mortgages and an array of home loans.
On top of this gloomy release, we will also see figures for US house prices, consumer confidence, durable goods orders and new homes sales. All will be horrible and all will add to the news in the first GDP reading at week’s end.
Major US results are expected from McDonald’s Corp (overnight), the burger giant, Telco, Verizon.
Industrial giants, Caterpillar (overnight) and DuPont will confirm the damage done to manufacturing from the slump, especially energy related activities. That will be emphasised by two ‘poor’ quarterly reports from oil majors, Chevron and Exxon Mobil.
After GE reported a 43% slump in quarterly earnings on Friday, the figures for these and other big companies are not expected to be encouraging for investors.
The good news for consumers from slumping oil prices is bad news for the oil majors and chemical giants.
While it would also be ‘good’ news for DuPont, demand for its vast array of products has been badly hurt by the US and global economic slumps.
Caterpillar was hurt in the 4th quarter by the economic slowdown, especially in China and the downturn in demand in resources in countries like Australia and Canada. 4th quarter earnings fell a large 32% and it announced job cuts totalling 20,000.
Reuters says data from its survey of analysts reveals there are now expectations for a fall in 4th quarter earnings of around 28%. Those estimates have doubled in the past fortnight.
Japan will meanwhile see data on retail sales, unemployment and industrial production released this week for December and all will make depressing reading about the health of our largest export partner.
We can also expect more figures out of China on inflation, retail spending and some figures on property.
The Reserve Bank of New Zealand is expected to cut rates by 1% on Thursday.
In Australia the December quarter CPI will dominate data releases when it appears on Wednesday from the Australian Bureau of Statistics.
The figures are expected to show an 0.2% fall in the CPI in the quarter, taking the headline inflation rate back down to 3.8% yea
