Weekly Diary: Watch The Fed.

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DIARY: Watch The Fed
October 29th. 2007 - Australasian Investment Review – (AIR)

The focus in the week ahead will be on the US Federal Reserve which is expected to cut its key Fed Funds interest rate by another 0.25% (to 4.5%) early Thursday morning, our time.

The cut will come as an attempt to minimise the fallout from the housing slump and credit crunch.

The AMP’s Dr Shane Oliver said on Friday that given the run of weak economic data recently, another 0.5% cut is a distinct possibility. The Fed cut by 0.5% in September.

The likelihood of the cut will come despite several leading US investment banks lifting their estimates of US third quarter growth to around 3.3% - 3.5% (annual rate) late last week after the better than expected durable goods orders.

But the pressure for a cut is still being really driven by the continuing gloom in financial markets, especially among US banks, which are struggling with dodgy loans and big write-downs and losses across the board.

The Fed remains concerned about the economy slowing further, but we won’t get the key US indicator, the jobs and employment numbers until Friday, two days after the decision.

They will be for October and could in fact be weaker than forecast (80,000 jobs according to polls) because of job losses across the housing, building, real estate and finance sectors.

The Fed is keeping an eye on inflation but so far its preferred measures show price pressures are still under control, despite the sliding dollar and rising oil prices.

Dr Oliver reckons that by the end of January next year the Fed Funds rate will be down to around 4%.

Besides the Fed meeting, the US will see stats on business conditions due for release along with the jobs and payroll numbers, third quarter GDP growth (which also comes out the day of the Fed meeting), home prices, consumer confidence, employment costs and consumer prices.

The US corporate earnings season continues with about 100 Standard & Poor’s 500 companies scheduled to report quarterly results and hundreds more from mid-sized and smaller companies.

So far the reporting season is not uniform, with financial, housing and real estate stocks doing badly, but exporters and tech firms doing better than expected.

In Australia, data for new home sales, private credit, building approvals, retail sales and the trade balance will be released.
Building approvals will remain lacklustre, but retail sales should remain reasonably solid, led by the continuing boom in consumer electronic products, such as Plasma and LCD TV’s and internet associated products and software.

Local earnings reports of note from major banks are St George on Wednesday and Westpac on Thursday.

Annual meetings from Boral, Transurban and Argo Investments.

Annual meetings from ASX, Perpetual, Sydney Attractions Group and JB Hi-Fi; Lihir Gold releases quarterly production report.

Reserve Bank releases financial aggregates for September; Australian Bureau of Statistics releases building approvals figures for September; Housing Industry Association releases new home sales figures; St George Bank annual profits released; AGMs from Noni-B, Origin Energy, Fantastic Furniture and Foster’s Group.

Westpac annual profit; .ABS releases international trade and retail sales stats for September; RBA releases its commodity price index for September; the Aust. Industry Group/Price Waterhouse PMI for October; NIB to list on ASX; AGMs from Newcrest and Flight Centre.

Housing Industry Association September quarter national and state outlook; annual meetings for PMP, Downer EDI, GUF and Ansell.

Copyright Australasian Investment Review.
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