As we have seen, the stability of some of the world’s major banks is again being questioned, amplifying the pressures on markets from the bitter recession.
That’s one of a number of major issues to confront investors in the week ahead, along with corporate earnings here, in the US, Europe and China; the downgrading of Queensland’s credit rating and a host of economic statistics which will again confirm the severity of the slump in the US, and the evolving slowdown here.
Probably the big issue that will run through sentiment is about the stability of banks around the world, and the credit system.
At a time when corporate bond issues (at high rates) are rising, commercial paper issues are up and bank lending is soaring in China, the fears about the health of Central and Eastern Europe and the status of the crippled US giants, Citigroup and Bank of America, is threatening to again plunge markets into disarray..
As we have read, the fears about the future of both banks contributed heavily to the widespread slump in sharemarkets over the week, culminating in that 12 year low in the US on Friday night, our time.
CNBC television reported the US Treasury department will provide details on the Obama administration’s bank rescue plan this week, helping financial shares cut losses.So did Reuters.
But there are some who believe that this detail will include information of how and when the now feared stress tests of the 14 major US banks will start.
This will be an examination the US banks have not endured before from an outside, independent tester and could set off another round of fears about the health of the likes of Citi and BoA.
There are some small signs in the US that the economic might be slowing, then again this week’s figures might brush those aside.
These include US data on durable goods orders and consumer confidence, the Case-Schiller index of home prices for December, sales of both existing and new homes, and Friday’s second preliminary report on American 4th quarter gross domestic product.
The figures will provide some clues as to the state of the fragile housing market after last week’s poor new home starts figures for January showing a 17% drop in December.
The sales figures will show the extent of the foreclosure problem which President Obama started tackling last week with a bailout plan for up to 9 million US homeowners.
The "inventory overhang" of unsold new and existing homes will be a key figure to watch for, along with the 20 city rolling Case Schiller price Index.
The Commerce Department issued an advance report on fourth-quarter GDP last month that showed the economy had contracted by 3.8%.
The AMP’s Dr Shane Oliver says the GDP figure could be revised down to an annual contraction of 5.5% in the second estimate.
That led quite a few analysts to initially think this was good news until they looked at the large positive contribution to the final figure of 1.3% from the rise in inventories in the quarter.
This will either be revised down, or remain and confirm that retailing, cars and other areas of consumption are still being a drag on the wider economy, and that this will continue for the current first quarter.
The economy’s troubles are likely to be confirmed by corporate results to be released next week by retail bellwethers Home Depot, Target Corp and Dell.
All will be ugly: Home Depot’s rival, Lowes, reported a 60% fall in 4th quarter earnings. Target could produce a loss as sales were poor for the quarter.
Dell has struggled with the retail slump and the turnaround being driven by returned chairman and CEO, Michael Dell. Hewlett Packard’s poor quarterly result and lowered outlook last week wasn’t good news for Dell.
Federal Reserve Chairman Ben Bernanke is set to testify on monetary policy before the Senate Banking Committee on Tuesday and Paul Volcker, a top economic adviser to the President testifies before a Joint Economic Committee hearing on Thursday.
In Australia, data for wages, construction work, business investment and private sector credit will be released.
December quarter business investment data on Thursday will be weak, reflecting the slump, especially in resources.
Dr Oliver says business investment plans are expected to be revised down, consistent with the slump in business confidence and weakening profits.
He says December quarter wages data is likely to show that wages pressures are abating, not that they were ever much of a problem anyway, and with unemployment now on the rise wages growth is likely to slow towards 3% over the year ahead.
December half 2008 profit reports in Australia will flow thick and fast in what is effectively the last week of the profit reporting season.
Companies due to report include Fairfax, Seven, Bluescope, Westfield, Origin Energy, Seven, Telstra, Harvey Norman, QBE and Woolworths.
