World financial markets face a tense week on Monday with a flood of sensitive reports on the economy and corporate health following a weekend breather from panic trading and share price turmoil.
What happens in global markets in coming days is anyone’s guess after a week when shares hit five-year lows at one stage due to fears over waning company profits, economic prospects and accounting scandals.
”Is the purge over? We hope so, but we don’t know,” Valerie Plagnol, chief economist at CIC bank in Paris, said as she and friends finished lunch on a sunny Sunday break from last week’s violent swings in financial markets.
For her, it was a case of whether reports on economic growth and consumer confidence in the United States and elsewhere would confirm the feeling that the scale of woes on the company front is genuinely endangering a recovery in economic growth.
Investors across the world took fright in recent days mainly because reports from companies sparked fears that sliding profit and share prices were denting consumer morale to an extent that could hit household spending and company investment in turn.
Panic selling a week ago drove shares in New York and many other world capitals to their lowest levels since late 1998, a time when world markets were fretting over an economic meltdown in Russia and financial crises in Asia.
But stocks shot back up last Wednesday, when the blue-chip Dow Jones share index in New York made its second biggest points rise in history with a leap of 488.95 points, or 6.35 percent, sparking recoveries in London, continental Europe and Asia.
The rebound was helped by comforting words from the White House about prospects for a pick-up in overall economic growth and more steps to stimulate the economy if needed, as well as a deal in Congress on laws to counter fraud or negligent auditing.
Nervous trading ensued in the following days even though many markets recovered ground at the close of trade on Friday.
As Matthew Johnston, managing director of trading at Lehman Brothers bank in New York, said after the rebound on Wednesday: ”We were way due for a bounce but the fundamentals haven’t changed. We’re still dealing with terrorism, accounting issues and fundamentals (or the economy), which appear to be showing signs of deterioration.”
WATCHING THE US ECONOMIC DASHBOARD
Plagnol in Paris said investors feared any pick-up in the pace of the US economy, vital to growth in the rest of the world, was likely to produce a ”profitless recovery”.
They were still shaken by the accounting scandals flushed out by the demise of US energy giant Enron and WorldCom.
The coming week could provide some pointers on how the murky accounting sagas and wider profit drops were affecting the will of consumers to spend and the pace at which the big economies were turning over.
”We’ve got a situation which as not yet stabilised, with all this series of (company) results and fraudulent bankruptcies,” said Plagnol. ”This week we will get a chance to assess what is happening in terms of the real economy as a whole.”
That includes a report on US economic output, measured as gross domestic product (GDP) for the April-June period, which is due on Wednesday, preceded on Tuesday by a readout on the state of consumer confidence for July.
Markets will also be looking for signals from the European Central Bank and the Bank of England, amid predictions that both will avoid any changes in interest rates that effect the cost of borrowing and industrial activity.
Friday could also be a trying day for markets, with crucial data on the pace of job creation and losses in the United States and a July survey from the European Commission on confidence in industry and among households across the 15-nation European Union and the narrower grouping of 12 euro currency nations. – Reuters