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.
After last week’s grim data flow, culminating in the worst growth figures for America in 26 years, this week will see moves to relieve the pressure through further easings in policy.
Macquarie Bank strategist, Rory Robertson said yesterday:
Since the collapse of Lehman Bothers in mid-September, incoming economic data have confirmed that the US and global recessions will be the most severe in the post-war period.
As many expected, the revisions on Friday showed that US GDP contracted at a 6.2% annualised rate in Q4 (a drop of 1.6% q/q). It was the biggest slump since 1982 recession.
Central banks will meet in Australia, Europe, the UK and Canada and all are expected to cut key interest rates by another 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%.
Domestic indicators, here particularly for housing and business investment, were stronger than expected last week and the RBA and Governor Glenn Stevens made it clear the RBA was interested in taking a breather to see how the 4% of cuts here and the two stimulus packages impact the economy. Friday’s credit figures for January were better than most analysts had forecast, so that could stay the RBA’s rate cut.
But against this, the global economic news last week was far worse than expected, particularly amongst key Asian trading partners such as Japan, Taiwan, South Korea and Thailand. All saw their economies shrink, with production and exports falling sharply.
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%, Canada will reveal a set of miserable figures for its 4th quarter this week.
We in Australia will find that with the likes of China and India, we ended 2008 as one of the globe’s best performing economies, with growth in the 4th quarter, small as it might be.
That will be better than 3% plunges seen in Japan and elsewhere in the region where our major markets are located.
It’s likely that growth could be positive after September’s 0.1% rise. 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.
The AMP’s Dr Shane 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.”
Before the GDP figures we get December quarter figures for the current account deficit, public sector spending (tomorrow) and inventories today.
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. We will get data for new home sales, retail sales, the trade balance and building approvals 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 suggestions 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. The Bank of England could go close to cutting rates to the same range as the Fed; 0% to 0.25%.
The health of US banks will again hold centre stage: The US now owns 36% of Citigroup. Citi shares plunged by 39% after the deal was announced. No confidence there from US investors.
US sharemarkets ended at 12 year lows on Friday and have already corrected this year from the end of 2008 closes and November highs.
February car sales will be released here and in America. The only question is whether US car sales again fell to match the 37% plunge in January.
Same-store US retail sales for last month from the major retail chains will also provide insight into how consumer spending is holding up. Factory orders are likely to be down for January.
The Federal Reserve’s anecdotal Beige Book report on the economy will provide another sobering countrywide look at the state of the US economy.