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WORLD WEEK AHEAD How sick is America?

Sunday 17th January 2010

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JPMorgan Chase has dropped the gauntlet. Unfortunately, it wasn't quite what investors were seeking.

On Friday in New York, JPMorgan reported heavy loan losses in the fourth quarter, signalling that consumers would need more time to regain their confidence and buying power.

JPMorgan boss Jamie Dimon said, "While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious."

That comment has put a negative tone on the bank profits set to be reported this week. Citigroup is set to report on Tuesday, Bank of America and Morgan Stanley on Wednesday, and Goldman Sachs on Thursday.

Citigroup may say it lost US$5.03 billion from repaying government bailout money. In contrast, Bank of America, the biggest US bank by assets, may say it earned US$164 million and Goldman Sachs may say that profit climbed to US$3.36 billion, according to analysts’ estimates compiled by Bloomberg.

And the pressure isn't about to let up.

Saudi Prince Alwaleed bin Talal says that it's time for Citigroup chief Vikram Pandit "to deliver," according to an interview on Fox Business News. “I told him today, very openly, that 2010 is the year for him to make it,” Alwaleed said yesterday, according to a transcript provided by Fox Business News. The interview was also posted on the channel’s web site. “I told him that clearly the market gave you two years leeway, but I think now it’s time to deliver.”

But the banks aren't alone in reporting results as earnings season accelerates this week. Google and General Electric are also on the reporting board. Google on Thursday and GE on Friday.

The Standard & Poor’s 500 Index lost 1.1% to 1,136.03 at 4:04 p.m. in New York, the biggest drop since December 17. The Dow Jones Industrial Average tumbled 100.9 points, or 0.9%, to 10,609.64. About four stocks fell for each that gained on the New York Stock Exchange.

On Friday in Europe, the Dow Jones Stoxx 600 fell for the first time in five weeks. It shed 0.9% to 256.44 on Friday, for a weekly slide of 1.1%. Also on Friday, national benchmarks fell in 17 of 18 western European markets - Iceland edged higher. The FTSE 100 slid 0.8%, the Germany's DAX shed 1.9% and France’s CAC 40 lost 1.5%.

On the European corporate front, Kraft Foods has until Tuesday to modify its current 10.9 billion-pound stock-and-cash offer for Cadbury.

On the economic front, the outlook for the US housing market may become clearer. On Tuesday, the National Association of Home Builders is expected to show builder sentiment rose a bit this month, while government data on Wednesday is expected to show that housing starts edged higher last month.

As for the outlook for inflation - and US interest rate policy, the latest producer price index is to be released on Wednesday.

Both the yen and the US dollar gained on Friday amid concern that the global economic recovery would require more time. The yen was 1.2% higher at 130.61 per euro in late trading in New York. The euro dropped 0.8% to $US1.4381. The dollar dropped 0.4% to 90.81 yen.

Futures on the CME Group exchange show a 27% chance the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from almost 55% odds a month ago, according to Bloomberg.

The 10-year note yield declined eight basis points to 3.66% in New York, according to BGCantor Market data.

On the commodities markets, weakness prevailed on Friday.

Oil prices fell for the fifth straight day on Friday, settling at $78 per barrel. Oil fell every day last week. Part of the reason for the decline is milder weather in the U.S. which is seen as reducing demand for heating oil

Copper slid in London trading as the pace of the inventory rebuild accelerated. Gold futures fell 1.1% in New York on Friday. The decline in the precious metal may prove temporary though as 12 of 19 traders, investors and analysts surveyed by Bloomberg, or 63%, said bullion would rise next week.

US markets will be closed on Monday for the Martin Luther King holiday.

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