So what will frighten markets this week?
Will it be Friday’s big sell-off, especially in the US and Europe that saw shares and commodities (especially oil and gold) falling sharply as the US dollar rose; US and European bond yields falling just as noticeably as a flight to quality nervousness appeared?
Could it be our interest rates about to rise as the market weakens by a 100 points? Tokyo is also going to start weakly.
Or will it be the news that Citigroup may have a $US10 billion write-down to report for the current quarter, or the collapse of nine US banks (in one group) in what was the biggest collective number of failures since the crisis started in 2007?
CIT Financial went into bankruptcy this morning, our time, with $US71 billion in assets and $US65 billion in debt. it was expected, but the timing could prove to be unfortunate tonight when US markets resume trading.
Or is the sudden fear that a simple change of wording in the post meeting statement from the Fed, the ECB and the Bank of England this week, could see an end in sight to the cheap money, low interest rate regime that has powered the great rebound since March?
In fact the wording of the Fed statement and then the US jobs report will overshadow the rest of the week’s news and data releases.
In any case, Friday’s sell down made sure October ended up a losing month in most markets, even in Asia where Friday saw a rebound off the back of the US return to growth in the third quarter.
That proved to be a temporary rebound, lasting a day at most as the fears about the strength of the recovery in many economies returned.
It ran out of strength in Europe and quickly turned into a surprising nasty sell off, echoing that seen Wednesday, especially in US markets.
All this opens the way for big falls in Australia and Asia today that will more than wipeout gains Friday.
And there should be a flow on into Europe and the US, unless there’s some of mood breaker.
But that won’t come until later in the week when we see the post-meeting statements from the Fed, the ECB and its UK counterpart.
It’s all about the wording of that phrase in the September and August statements we repeated in Friday’s weekly email:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
Norway lifted interest rates last week, and Australia goes again tomorrow.
The International Monetary Fund said on Thursday that the economies of India, China and Australia were recovering especially rapidly, suggesting it has noticed growing pressures for authorities in those countries to tighten monetary policy ahead of others in the region.
The Reserve Bank of India put the markets on notice for a monetary tightening, Australia is of course tightening, but China’s central bank made it clear Friday that it saw bank credit rising again this quarter, an indication it doesn’t see any need to tighten policy.
"Medium and long-term credit will increase "substantially", and the bill-financing, which facilitates short-term credits, will continue to fall after the central bank tightened rules to ensure the money flow into the real economy other than stock market speculation," the central bank said in a statement.
There was some talk in international financial papers (starting in the Financial Times) that the Fed might alter this working to indicate a time frame when the low rates might end.
That seems to have triggered this upsurge in concern that the interest rate subsidies from big central banks (but not in Australia) might be taken away too early, and in turn force a sell off in riskier assets such as corporate bonds, commodities and many shares.
Then there’s appeal from the FT in a weekend editorial for centrals bank not to withdraw stimulus too early.
"Thanks to public policy, the global economy has stabilised. Growth is returning. But, even so, it is too early to declare victory over the recession."
"There is a real – and justified – fear that this easy policy will stoke the next crisis.
"The call for tighter policy has already begun. Fear of inflation is always and everywhere a constant.
"Even, it appears, during periods of deflation. But it would be madness to deepen this crisis, which is here now, to fend off a hypothetical future disaster that still exists only in the imagination."
Probably the strongest comments came on Saturday from a senior Chinese Government minister.
Chinese Commerce Minister Chen Deming, in a speech made in Shanghai, warned against withdrawing economic stimulus measures, citing the risk of another world slump.
“There are increasing signs that the global economy is heading in a positive direction, but there are still many uncertainties,” Chen said at a forum on Saturday. He said that if countries “withdraw the stimulus measures now, the global economy will plunge.”
Bloomberg reported George Soros as warning that the recovery might run out of steam, and Nobel Prize-winning economist Joseph Stiglitz as warning that "For the world as a whole, it’s premature to think about exiting stimulus,”at the same conference that Minister Chen spoke at.
Figures out yesterday showed the Chinese economy is still doing well.
The Purchasing managers Index (an officially supported survey) showed that the country’s manufacturing expanded at the fastest pace in 18 months.
The PMI
