Could this be the week when government action turned the tide?
It needs to be following the spate of gloomy news last week on growth, jobs and financial stability here and around the world.
In Japan and South Korea the news was especially glum with production down sharply in December.
In the US the economy contracted by 3.8% in the December quarter, but that was made to look better than it was with a 1.3% contribution from rising business stocks.
That means there are big losses to come this quarter.
But now there are signs the US banking bailout package from the Obama administration will be released. The $US819 billion economic stimulus package goes to the Senate this week in Washington.
Friday sees the January jobs and unemployment data released.
It will be nasty, some US economists reckon the losses will be over 500,000 in the month and the unemployment rate could surge closer towards 8% from the current 7.2% rate in December.
So the two packages are vital to changing US sentiment and confidence which are taking a battering.
In Australia we will get the Federal government’s second stimulus package around midday Tuesday, two and a half hours before the Reserve Bank reveals its latest rate decision: it will be at least 1%, but a cut of 1.25% or even 1.5% wouldn’t surprise.
On top of these moves we will also get US 4th quarter earnings and locally, the flow of local interim results with BHP Billiton on Wednesday and News Corp early Friday morning the key releases.
But the RBA’s rate cut will be vital in reinforcing the message the government will be sending with its stimulus package.
Since the last RBA board meeting in December the global economic outlook has deteriorated further, the fiscal and monetary stimulus package appears to have provided only a temporary boost to the local economy dissipated and inflationary pressures are receding rapidly.
Dr Shane Oliver, the AMP’s Chief Economist said on Friday "We see the RBA cutting the cash rate by another 1% taking it to a record low of 3.25%. By the September quarter the cash rate will likely have fallen to around 2.25%."
And Macquarie Bank interest rate strategist, Rory Robertson said in his latest newsletter.
"The RBA still looks set to cut its cash rate by another 100bp next week, to 3.25%, and towards 2% in coming quarters.
"There’s some risk of less or more than 100bp, of course, but for me it’s now a struggle to envisage either the 75bp cut still favoured by some, or the 125-150bp option, now much discussed after the RBNZ’s second 150bp cut this week, its second huge "catch up" move as the NZ economy moved into its second year of recession.
"As is clear to all, the RBA will justify its first cut in 2009 by pointing to the further deterioration of the global economic outlook, ongoing financial stresses, the weakening local economy and further evidence of declining local inflation."
We will also get December quarter data for house prices in the major capital cities: it won’t be nice. New home sales figures, the trade balance, building approvals and retail trade will also be released.
So a big week for finding out the current state of economic activity and what the government and RBA will be doing.
The RBA Friday released its new economic forecasts for 2009-2010 in its first Monetary policy Statement of 2009.
Dr Oliver says the retail sales will show December got "a decent bounce reflecting the payments to households in December, but anecdotes from retailers suggests that this has since been reversed".
He says private sector surveys suggest that national average capital city house prices were down around 0.5% in the December quarter, with continued falls in Sydney, Canberra and Perth.
This would translate to a 1.8% fall in house prices over the year to the December quarter last year – their sharpest fall ever recorded by the ABS.
"While the apparent undersupply of housing in Australia should prevent a US style collapse, rising unemployment is nevertheless likely to push average prices down by another 10% this year as buyers stay on the sidelines and more existing home owners run into trouble servicing their loans," Dr Oliver wrote.
Besides BHP and News Corp, the December half 2008 profit reporting season will also kick off with companies including Alumina, West Australian Newspapers and ResMed due to report.
This profit reporting season is likely to be the weakest in years on the back of the slump in growth. Watch for more capital raisings, asset write-offs (News Corp and Fairfax Media for instance are prime candidates).
Dr Oliver said cuts to dividends and capital raisings are likely to be key themes as companies try to swap difficult to obtain and expensive debt for equity capital.
Resources sector profits are likely to be up on the back of last year’s record iron ore and coal prices; this is likely to be temporary with bulk commodity prices likely to fall sharply this year.
Elsewhere in the world interest-rate decisions from the European Central Bank and the Bank of England will come later in the week.
The ECB may not cut rates this month to see what happens to the Euro economy. The sharp rise in German unemployment might change that approach by Thursday night, our time.
The Bank of England is expected to announce a cut in its cash rate from 1.5% to just 1%.
We will also get the now monthly reports on US, Australian and Asian and European manufacturing and services sectors tonight and on Thursday.
Some of the surveys (Asia and the US) will make cruel reading.
Earnings from Germany’s Deutsche Bank
