The Week Ahead: Will The US Avoid A Depression?

This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL

By Andrew Nelson

The US government’s plan to help halt the worst financial crisis since the 1930s will take centre stage this week. While there’s little in the way of detail, as of Sunday night Sydney time, the US federal government is asking Congress for US$700 billion to buy up distressed assets.

The request put to Congress was little more than two pages and would give the Treasury secretary considerable power in buying, selling and holding residential or commercial mortgages, or instruments related to mortgages. And while the Democrat Congress isn’t necessarily happy about the lack of detail in the proposal, one thing all agree on is that whatever is to be done, it needs to be done quickly.

In what turned out to be a busy weekend for Australian regulators as well, ASIC has banned the covered short selling of any and all listed shares following similar moves in the US and a number of other countries.

ASIC felt that failing to do so could have lead to a run on the local finance sector, saying in a statement the move was necessary to “maintain fair and orderly markets in these exceptional times of global crises of confidence in financial markets”.

ASIC Chairman Tony D’Aloisio (ex-ASX) said that because of the relatively small size and the structure of the Australian market, it was necessary to extend the prohibition to all stocks. “To limit the prohibition to financial stocks, as has been done in the U.K., could subject our other stocks to unwarranted attack given the unknown amount of global money that may be looking for short-sell plays,” he explained.

ASIC is to reassess the move in 30 days and advise the market whether or not it will lift the ban on the broader market, but leave it for financial, or lift it entirely. As with pretty much everything else of late, it all depends upon what happens in the US and UK over the next few months.

It’s with all this in mind that we start the week and the good news is that the SPI is up 133 and global markets rallied hard on Friday, with the Dow ending almost 4% higher and the S&P 500 up almost 4.5% by the final bell. The British shared the enthusiasm, with the FTSE ending a record day almost 9% higher. 

The US and Europe aside for a moment, on Monday we start with Sunday’s Bank of Japan’s Monetary Policy Board minutes from the Friday meeting and that and the country’s all industry activity index for July will be the biggest releases on the regional economic front. Third-quarter consumer confidence results for New Zealand are also due out.

Australian motor vehicle sales for August is also scheduled for Monday and will likely confirm the economy is slowing, while a score of stocks trade ex dividend. Billabong ((BBG)), BlueScope ((BSL)), Newcrest ((NCM)) and Oil Search ((OSH)) are among them.

On Tuesday we start with UK house prices, while The Chicago Fed’s national account index will give an insight into overall economic activity and inflationary pressure in the US.  NZ consumer confidence figures also come out later in the morning. That and a half dozen local divs.

Wednesday starts with the Richmond Fed’s manufacturing index, US house prices and industrial and manufacturing data from Europe. Japan manufacturing data come out later in the morning. Domestically, the Department of Employment and Workplace Relations will also release skilled vacancies data for the month of September.

Wednesday sees the Australian Stock Exchange ((ASX)) host it’s AGM and we’ll likely hear some interesting comments about the outlook for the domestic market and global markets in general. We’ve got a sprinkling of local dividends and David Jones’ ((DJS)) full year results will set some important expectation for the broader retail sector.

US existing home sales and the European current account read set the tone for Thursday. Later in the morning we get the NZ current account and the RBA’s semi-annual financial stability review. Let’s hope RBA Governor Stevens confirms comment made this week that Australia is still well placed to overcome the negative impacts currently at play. Nufarm’s ((NUF)) full year figures will tell us a little about the outlook for the broader ag services sector. All that and a handful of divs.

And to top it all off we’ve got the RBA Financial Stability Review at 11:30 AEST. This is the centtral bank’s key  half-yearly review on the health of Australia’s financial system. One couldn’t ask for better timing!

In his last speech, RBA Governor Stevens said he believed that the Australian financial system and businesses are still well placed to overcome the negative impacts at play. It’ll be interesting to see if and how his views have changed given these historic past few weeks.

Friday isn’t much slower, with US durable goods and August new home sales starting us off and followed by the NZ 2Q GDP read, with the numbers expected to support the technical definition of a recession. Japan CPI is also out, as is Australian HIA new home sales for August.

For more up to date details, keep an eye on the FNArena calendar.

Click to view our Glossary of Financial Terms