We have gone through a volatile period in almost all the global markets. There are various versions of slowdown and probable beginning of recession in the US economy. Almost all markets have been bleeding and any recovery seems to be unconvincing.
A few trillion dollars have evaporated across the world and investors as well as well as speculators have lost heavy. Some have had cash loss, while all have had a mark-to-market loss in wealth. The undertone is unsteady and sentiment is tending to go bearish.
Everyone has been looking to various authorities such as the Fed, the Bush Admn and the ECB while most have been trying to lip read the Finance Ministers at the World Economic Forum.
Given this background, lets take a forward look at the likely events, unfolding scenario and what it means for us:
US President Dubya Bush's State of the Union address to a joint session of Congress is for us at early morning of Tuesday Jan 29 (local Monday, 28 Jan 2008, 9 pm).
President Bush and congressional leaders have agreed on USD150 billion fiscal stimulus package that would include tax rebates for individuals and families.
This plan apparently agreed by the Bush administration and leaders in the U.S. House of Representatives, will cover about 35 million working poor families that would not have been eligible for tax rebates distributed in a 2001 stimulus plan. These low-income workers could see checks ranging from USD300 to 600.
The rebates would be too small to make a difference for strapped consumers and a third of the money was likely to be used to pay existing debt, limiting its stimulative value. It will play only a marginal role in reviving economic growth.
The week's data include new home sales on Monday, durable goods orders and housing prices on Tuesday, and the first look at the economy's pace, as measured by gross domestic product, in the fourth quarter, due on Wednesday.
The expectation is the economy grew at an annual pace of 1.2% in Q4, slower than in the Q3.
A report on personal income and spending is due on Thursday and will be watched for consumer data and attitudes.
The Fed meeting is expected to result in a reduction of 50 bps in the Fed funds rate, already down to 3.5%.
The central bank's announcement will come only eight days after the Fed took emergency action last Tuesday and cut rates by 75 bps. The move was surprising, not only for its size, but also because it came ahead of a scheduled policy meeting. The Fed acted as stocks were falling worldwide and about an hour before the U.S. market opened on Tuesday after a three-day holiday.
The FOMC announcement is expected on Jan 31, at the end of a two-day meeting.
The report on nonfarm payrolls is due on Feb 1. If it shows that the December report was an aberration, the market could derive some strength. The median forecast is for January payroll growth of 63,000 jobs, and an unemployment rate of 5%.
The December report showed a meager 18,000 new jobs and the jobless rate rising to 5% from 4.7%, the biggest increase in the rate since 2001.
Friday's agenda of economic data includes the Institute for Supply Management's report on factory activity.
Just recall, the ISM's December report was another shocker, with the manufacturing index falling to 47.7, the weakest reading since April 2003. The drop put the index below 50, a zone that indicates contraction rather than growth. The Jan index is expected to be slipping to 47.3.
Wall Street is still in the midst of a quarterly earning season. With about one-third of S&P 500 companies having reported quarterly results already, EPS on average are 25.6% below Wall Street expectations, according to the latest Reuters estimates scorecard released on Thursday night. Revenues are 4.1% below expectations on average. Contrast this when a year ago average EPS beat Wall Street's expectations by 3%.
We have RBI due to announce the Third Quarter Review of Annual Policy on Jan 29. While everyone expects Dr.YVR to announce softer interest rate regime, analysts would watch for his comments on the global economies.
We are likely to be faced with plenty of bearish signals from the economic tables and research reports due with the announcements mentioned above. Ben Bernanke & Dubya Bush are likely to provide an impetus. My guestimate is they will be unconvincing.
Home sales will continue to drag. Mortgage market will be nearly nothing for second grade borrowers and at a premium for the eligibles. Most Americans will wait out hoping that the home prices will continue to fall and a year later they could get a house cheaper.
Overall, the stock markets are likely to be volatile. All upmoves will be without volumes and unconvincing. BSE index could retest 17000. At around those levels, long term investors should add to their portfolio quality scrips such as RIL, ONGC, ICICI Bank, BHEL, NTPC and M&M.
This is not the time to borrow nor time to speculate. Being conservative could be the smartest thing to do |
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