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Week in Focus

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What goes up must come down…

Mon, Oct 5 2009, 07:35 GMT
by RANsquawk Research Team

RANsquawk

The final quarter of 2009 got off to a bumpy start last week and rightly so, after a number of economic data reports missed the street estimates, which in turn undermined investor confidence. Whether the pullback last week will mark the beginning of the new trend will likely depend in part on the economic data releases this week. However, the bulls out there could view the latest dip in stock prices as a fresh buying opportunity and jump right back in. The stage is set for a choppy trade….

Still, it appears that some investors are nervous about the overall state of the world economy, with rising unemployment rate in the US seen as the major factor which has the potential to derail the recovery. However, both the Fed and the market participants have acknowledged that the unemployment rate of 10% is almost certain to be surpassed. Thus, investors may look for answers on the state of the economy elsewhere, such as the upcoming Q3 earnings.

This week will see Alcoa officially kick off the earnings season; though it is doubtful whether the upside surprises seen in Q2 will feature again this time. Nevertheless, strong earnings may just overwhelm any uncertainties surrounding the health of the economy and in turn keep the 7-month rally intact. Though the prospect of such scenario working out is highly unlikely and whether the investors like it or not “what goes up must come down”, as once said by Sir Isaac Newton.

No news good news?

A relatively light calendar this week and it will be kicked off with the US ISM Non-Manufacturing, with consensus for a balanced reading of 50.0, up from the previous month’s slight contraction at 48.4. The UK, France, Germany and the Euro zone will all publish PMI service sector numbers. Thursday will be relatively busy. In the US, weekly jobless claims will be eyed for signs of improvement after last week’s weaker than expected data. The Bank of England will announce its latest interest rate decision. Rates are expected to be left unchanged but the MPC may decide it is time to implement new measures to fight the recession. Elsewhere, the ECB is also expected to leave its headline interest rate unchanged. Though as usual, the press conference will provide an insight as to whether the ECB members feel the conditions are indeed improving across the Euro zone.

And finally…

The US Treasury will conduct sale of USD 7bln 10y TIPS and USD 71bln notes this week. And given that the financial markets in China, the biggest foreign owner of Treasuries, will be shut down through to October 8th to observe the National Day and the Mid-autumn festival, prompted speculation that the auction results will disappoint. However, chief interest-rate strategist in London at Goldman Sachs Francesco Garzarelli said that the Treasury buying will shift away from Asia and back to US domestic players, in particular domestic banks.

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Published on  Mon, Oct 5 2009, 07:44 GMT