The health of the various economies, interest rates, banks and growth will dominate the coming week here in Australia, the US, Europe, the US and Canada.
Central banks meet in Australia, the UK, Europe and Canada and all are expected to cut key interest rates by another up to 0.5% as the outlook for growth continues to weaken across the globe.
In Australia, the Reserve Bank is expected to cut rates again tomorrow by 0.25% or 0.50%.
The best bet is a quarter of a per cent.
Domestic indicators, particularly for housing and business investment, were stronger than expected last week and the RBA and Governor Glenn Stevens made it clear they were interested in taking a breather to see how the 4% of cuts here and the two stimulus packages impact the economy.
Against this, the global economic news has been far worse than expected, particularly amongst key Asian trading partners such as Japan, Taiwan, South Korea and Thailand.
The AMP’s Dr Shane Oliver says this flow of bad news from Asia will result in a far worse hit to exports over the next six months than is currently factored into the Reserve Bank’s growth forecasts.
He sees the RBA cutting again, but by only 0.25%.
"We remain of the view though that the cash rate is heading to 2.25% by mid year and its worth noting that even if the RBA chooses to hold fire on Tuesday it doesn’t mean we have reached the end of the easing cycle," he wrote on Friday.
While Tuesday’s rate decision is the major news, Wednesday’s 4th quarter growth figures will also attract a lot of attention.
After America’s worst growth figures since 1982 in the 4th quarter’s second estimate of a fall of 6.2%, we will find that we ended the year as one of the globe best performing economies.
It’s likely that growth could be well above half a per cent on September (which saw GDP rise 0.1%, but will probably be revised upwards).
Goldman Sachs JBWere have upgraded their 4th quarter GDP estimate as a result of last week’s data flow, but they remain wary.
"Following the capex report we have upgraded our Q4 GDP estimate to incorporate a more modest contraction of -0.2%qoq (was -0.4%qoq).
"In our view, this will continue to mark the beginning of a mild recession.
"We continue to expect a 50bp cut in rates to 2.75%, before a final 25bp reduction in April to 2.50%.
"Certainly the stronger dataflow of recent days (construction, capex, wages) has increased the probability of a smaller move by the RBA, but the Bank has been especially forward-looking this easing cycle and we expect this to continue."
Dr Oliver says that "Recent data releases suggest that GDP growth was marginally positive to the tune of +0.2% quarter on quarter (or +1.2% over the year) in the December quarter reflecting the boost to consumer spending from the October fiscal stimulus package and the lagged nature of investment spending. We don’t expect this to be sustained"
Before the GDP figures we get December quarter figures for the current account deficit, public sector spending and inventories.
The Government spending figures will be of interest given the $8.4 billion stimulus injected in December which helped retail sales jump 3.8% in that month (Any revision in this week’s January sales figures will be of considerable interest as well).
Then later in the week we get the first solid indications of what January was like.
We know imports fell and we know credit rose quite strongly, especially in the business sector.
Data for new home sales, retail sales, the trade balance and building approvals (All for January) will all be released.
In the US, Australia, China, and Europe we get the much watched surveys on manufacturing sector confidence and activity.
After the poor production figures from major economies (Japan down 10% in January alone, US durable goods orders off over 5%) don’t expect good news.
The service sector surveys will be also released: there have been suggestion of an improvement in China.
Besides the rate decisions, the big news of the week will be the American payroll and employment data on Friday. Estimates are for another 600,000 jobs to have been lost in February which will push the unemployment rate up to around 8%.
First time jobless numbers are now running at near record levels. The news won’t be good.
The European Central Bank’s rate decision and reports on European economic growth will be closely watched.
The ECB seems to have been taken by surprise by the continuing slide in Europe, especially in Germany.
Investors will also be watching earnings from Dutch retailer, Royal Ahold, major UK bank, HSBC Holdings, France Telecom SA, Swiss cement maker, Holcim Ltd. and Anheuser-Busch InBev, the world’s largest beer group.
The health of US banks will again hold centre stage: The US now owns 36% of Citigroup (it’s a bit nationalised, not fully).
Now attention will turn to others, led by Bank of America. Expect more speculation and share price moves.
US sharemarkets ended at 12 year lows on Friday and have already corrected this year from the end of 2008 closes and November highs.
The US dollar is at three year highs against a basket of six major currencies including the yen and the euro.
Wall Street is unlikely to get any relief as relentless worries about the health of US banks and the economy will outweigh any attempts to find a silver lining.
The Federal Reserve will release details this week of its latest plans, a massive program to support consumer and small business lending.
The Term Asset-Backed Securities Loan Facility, also known as TALF, is a key
