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World Week Ahead: Data on the radar

Monday 15th November 2010

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There's been so much talk lately that it will be a relief for the focus to turn back to data, and this week won't disappoint.

In the US, there will be producer price and consumer price reports. There's also retail sales, business inventories and industrial production as well as housing starts, leading indicators and the Philly Fed.

In Europe, there's consumer price data from both the UK and the EU, British employment, and minutes from the latest meeting of the Bank of England.

"We're susceptible to a pullback if we don't get any clarity on fiscal policy and if any of this economic data disappoints," John Lynch, chief equity strategist at Wells Fargo Funds Management in Charlotte, North Carolina, told Reuters.

Lynch was referring to Wall Street, which last week snapped a five-week winning streak with some market bears warning of a sharper drop.

For the week, the Dow Jones industrial average and the Standard & Poor's 500 index each fell 2%. The Nasdaq Composite index lost 2.4%.

Friday's market activity in particular - both the S&P 500 and the Nasdaq shed more than 1% - doesn't bode well for the start of this week. Shares were hit hard by a rout in commodity markets.

Spot gold fell 3.3%, spot silver fell almost 7%, copper and oil dropped 3%, wheat shed 5% and sugar plummeted 12%.

"We have a liquidation pattern across the board in every commodity market here," Adam Klopfenstein, senior market strategist with MF Global's unit Lind-Waldock, told Reuters.
"Gold and other commodities are going to suffer in the short run as a result of the change in the opinion in the marketplace that China might not be able to grow as fast if it is going ... to rein in ... inflation or to curb fast money that has been spurring the economy," Klopfenstein said.

The reality is that Chinese interest rates are heading higher as authorities there seek to check rising prices. An increase this week would be the second in as many months.

"There are concerns that China may have to do a series of rate increases to stem inflation,"; Lim Chang Gue, who helps oversee US$29 billion as a fund manager at Samsung Asset Management in Seoul, told Bloomberg. "That's affecting sentiment broadly today given that China has been one of the biggest drivers for growth."

The Fed can only hope for rising prices in the US.

However, increasingly positive signs that the world's biggest economy is gaining traction is a sign that the US is headed in the right direction. General Motors pending initial offering will be another step in righting the government’s balance sheet.

Politically, President Barack Obama is being pushed and/or pulled to the centre and has already indicated a willingness to extend the Bush tax cuts for everyone, though some negotiation lies ahead.

What it means for investors is that the Fed may not need to buy as many bonds as it has indicated it is willing to. That would be a good thing. A key effort has been trying to encourage more risk taking and that appears to be gradually taking hold.

On Friday, Fed Chairman Ben Bernanke will get the chance to be more or less specific about how much help he thinks the economy needs.

That has set the stage for the greenback to recoup some recent losses, helped in large part by the renewed sovereign debt crisis in Europe.

Ahead of this past weekend, European officials were leaning hard on their Irish counterparts to put in a formal request for financial help, whether the country really needed it or not.

Depending on what the Irish do, a Spanish auction on Thursday should offer the latest take on investor sentiment. Last week, Portugal had to put the highest yield at an auction since it joined the single currency.

This week the latest European review of Greece's 2009 budget deficit will no doubt keep the focus on how badly the books have been kept.

The G20 meetings last week did nothing concrete to resolve outstanding issues - not an unexpected outcome.

"Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated actions,"the G20 statement said. "Uncoordinated policy actions will only lead to worse outcomes for all."

And that's why the data will represent a respite for investors. It's something that they will be able to sink their teeth into.

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