It’s not going to get any easier for markets in the coming week.
Global sharemarkets might have had the roughest week of the year so far last week, thanks to the unrest in Libya and other Middle Eastern countries.
This week however they not only have to contend with the deepening crisis in Libya and the impact that will have on oil pries and investor sentiment, but there are a couple of other factors that have emerged.
First of these will be a surge in uncertainty over the sweeping win in the Irish election of the opposition parties, Fine Gael and Labour, both of whom have talked about renegotiating parts of the 85 billion euro bailout package (especially the high interest rate Ireland is paying).
They also want to cut rents for commercial leaseholders such as shops, a move that could trigger a slump in already depressed property values, putting more pressure on the country’s broken banks and the bailout.
And in the US, there deadline for the closing down of huge parts of the US Government is Friday of this week, unless Democrats and Republicans manage to postpone it via some sort of agreement.
The March 4 deadline is when the US Government will reach the debt ceiling mandated by the US Congress. The Administration wants it increased, bur the Republicans (especially the newly elected conservatives in the House of Representatives which is now controlled by the Republicans) want $US61 billion in cuts right now.
Many of these cuts will shut programs down that the conservatives don’t like, rather than cut spending across the board. These cuts include the Securities and Exchange Commission and other market regulators.
If the talks this week fail, US Government agencies will cut all but the services they are legally obligated to perform. They are essential activities necessary to protect life and property, air traffic control, plus the armed services and national security.
The last time the federal government went dark was during the Clinton administration: five days in November 1995 and another 21 days ending in January 1996.
Conservative Republicans in the House of Representatives late last week outlined a short-term proposal to fund the government through a two-week budget extension including $US4 billion in spending cuts over that time period. But US analysts say that even this is agreed to, it merely postpones the day of reckoning until mid-month.
All in all a trading week fraught with possibilities for wide swings in sentiment and performance, especially if Libya worsens or there’s a temporary truce in Washington.
Friday’s employment and jobless data in the US won’t be affected, but other statistics could be, meaning the US economy’s fitful progress won’t be fully charted until the brawl is resolved.
That uncertainty about the economy’s strength was illustrated with last Friday’s second estimate of fourth quarter economic growth which saw a cut in the annual rate to 2.8% (0.7% quarter on quarter) from the initial estimate of 3.2%. Lower consumer spending a bigger fall in government spending played a big part in the revision.
A prolonged close down of the US Government would probably ensure a plunge into negative growth for the economy in the current quarter and perhaps part of the second quarter.
All this will overshadow the fourth quarter growth figures in Australia and the RBA board meeting on Tuesday.
One other worry for the markets will be the European Central Bank board meeting on Thursday night. The ECB is becoming worried by inflation and there are signs it is emerging as a concern in Germany.
The rapid rise in oil prices could see the commentary from the meeting change to a more hawkish tone, which will hit market confidence.
Last week showed the vulnerability of markets to higher oil prices and the uncertainty in the Middle East.
Apart from a sharp fall during Egypt’s tensions last month, world markets ignored what was happening in the region (and especially the slow rise in oil prices and sharp rises in prices of some other commodities) until last week.
Many markets ended three days of falls Friday with gains of varying sizes.
On Wall Street, the Dow had its biggest weekly point drop since the week that ended August 13 last year, even though on Friday it rose 62 points, or 0.5%, at 12130.45.
The Dow was down 2.1% for the week.
The Nasdaq Composite climbed 43.15, or 1.6%, to 2781.05, for a loss of 1.9% over the week while the Standard & Poor’s 500-stock index added 13.78, or 1.1%, to 1319.88.
But the 1.7% loss for the week was the S&P 500’s biggest since last November.
Australian markets are poised for modest gains when markets reopen today.
The SPI share futures index was up 20 points at 4839.
That was after the ASX200 rose 0.6% on Friday, trimming the week’s loss to about 2% – its worst result in three months.
The Australian dollar finished around 101.7 USc.
World equities as measured by MSCI’s all-country world index rose about 1.1% on Friday.
Stocks in Europe rose, with the FTSEurofirst 300 index of top European shares closing up 1.2%.
But for the week, European stocks posted the biggest weekly retreat in seven months, led by declines in airlines and car companies thanks to Libya’s violent uprising boosting oil prices past $US100 a barrel.
The benchmark Stoxx Europe 600 Index fell 2.4%, the biggest drop since July.
Bloomberg said National benchmark indexes fell in all of Europe’s 18 western markets, except Norway and Denmark. France&rsquo
