In the week ahead, the US dominates, both from a markets perspective, and from the information flow.
As we’ve just read, the markets could be poised for a second week of strength.
We pointed to this possibility a week ago, but it’s turned out stronger than appeared a week ago. In fact the market managed to climb despite some tough economic news from Europe, China and Japan.
This week there’s a flood of potentially poor news on the economy for the newly optimistic to ignore, or consider.
The US Federal Reserve meets for one and a half days and the outcome will see interest rates left on hold at zero to 0.25%.
But what markets are watching for is if the Fed expands its approach to credit easing to include buying a broader range of assets along with government bonds.
Watch the Fed’s first installment of money being pumped into the securities market for consumer credit, auto, student and small business loans under the so called TALF (or Term Asset backed securities Loan Facility).
The AMP’s Dr Shane Oliver says it will be worth watching this funding deal to see if it pushes private borrowing rates down further.
They are currently around 5.37% for 30 year fix mortgages: that’s not much different to Australian 25 year variable offerings from some lenders.
US lenders report a slowing in demand for house refinancings and new loans because of the recessed economy and rising tide of joblessness.
US variable rates are trading around the fixed year rate for 30 year loans.
US 10 year bonds are around 2.95%.
The Fed’s Open Markets Committee meets on March 17-18 with a statement about their decision due around 2:15 pm (5.15 am Thursday).
But then also to be released will be figures for US industrial production, home builder conditions and confidence, housing starts and permits to build new homes, consumer and producer prices, and a couple of business conditions surveys.
On Tuesday, the US Producer Price Index and housing starts, both for February, are due. On Wednesday, the Consumer Price Index for February will be released.
Economists say Industrial production probably fell 1.3% in February. The Fed releases it tonight, our time. That would be better than January’s 1.8% fall from December. That left January output 10% below that of a year ago.
In Australia, the minutes from the Reserve Bank’s last interest rate setting meeting will be released on Tuesday and will be examined for clues as to why the bank left rates steady.
The data flow in Australia from the board meeting suggests there will be a rate cut of 0.50% in April.
RBA Assistant Governor Malcolm Edey speaks on Thursday in Sydney. It will be his second speech in the past month.
There are few statistics locally this week: lending finance on Monday, new car sales for February on Thursday and imports for February on the same day.
The AMP’s Dr Oliver says "the continuing slump in domestic economic conditions and the likelihood that global economic activity will contract for the first time since the late 1930s is all consistent with the cash rate being cut again next month, probably to 2.75%, and ultimately falling below 2% by year end".
The main corporate result expected is David Jones’ interim on Wednesday. The retailer has already warned of lower earnings after same store sales fell.
The question now is by how much profits will be down and what the outlook is for the second half with the retail sector travelling a little more strongly than previously thought.
