The Week Ahead: Central Banks, Profits And Chinese Growth

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By Rudi Filapek-Vandyck

One observation that stands out this year is we haven't heard much about the so-called January effect. Usually equity markets tend to start the new calendar year with a certain gusto and as night follows day, next thing to follow is all kinds of statistical and other pieces of "evidence" are promoted as the new gospel as to why this bodes well for the year ahead.

This year, however, I haven't heard or read one single peep about it.

To avoid all miscommunication: I don't think there's any predictive power behind how equity markets start off the new year. Most years end in positive territory and most years start off with a positive mood, but this is by large no evidence of any iron clad correlation between the two. A negative opening tends to bring out fears for a negative ending, but investors only have to reflect back on how badly 2009 seemed for risk assets, at first, and only until the second week of March.

Whereas most commentators chose to focus on the positive stimulus for global consumer spending from sharply falling oil/fuel prices, equity markets have this month instead been dominated by the negative impact from falling oil prices. Witness another rout for commodities and commodities producers as well as further sliding government bond yields. Gold is back, somewhat. The Swiss too will be licking their wounds after their central bank was forced to abandon its "no passeran" euro-peg, supposedly forever and ever, but now that the policy has imploded and the Swiss Franc sharply corrected to the upside, surely the next point of focus will be: recession?

The first two weeks of January clearly have not been kind to most investors in the share market. Next week offers plenty to add more volatility to an already jittery market.

Tonight, US investors will digest the latest readings on CPI and industrial production while the Michigan University is scheduled to release its own survey on consumer confidence ahead of Monday's day off (Martin Luther King holiday). This may well imply the local share market is due for a low volume breather at the beginning of week three.

Come Tuesday, however, there's going to be some fireworks either way. Depending on whom we take guidance from, China's data dump on Tuesday is going to see the release of the country's lowest GDP growth number in five, if not 25 years (pick your pick). Suffice to say, both bulls and bears will be sharpening their pencils on the weekend.

The International Monetary Fund (IMF) will release its views on global prospects later that day and it's probably a fair assumption that a similar exercise is forthcoming as we saw this week from the World Bank (e.i. reduced growth projections). Later in the week we can all get excited about flash manufacturing PMIs including HSBC's for China.

Miners will ramp up the release of December quarter production reports and next week sees Rio Tinto ((RIO)), BHP Billiton ((BHP)) and Fortescue Metals ((FMG)), amongst others, on the calendar.

In between we'll take notice of Westpac's consumer confidence survey (on Wednesday) and ANZ's job advertisements research (Thursday).

All this against the background of quarterly profit reports in the US.

Can you believe it, both the Bank of Japan and the ECB hold meetings during the week. The latter meeting, on Thursday, in particular will momentarily stop financial markets from doing anything but paying attention to what Draghi and Co are finally going to announce. Will it be enough? Will it show sufficient gusto and conviction?

All shall be revealed in the week ahead.

But first, enjoy the weekend.

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