Big Five

April 27, 2009

Five things to think about this week:

REBOUND
- The global stock market has lost some of its spring, although it still managed a seventh straight  week of gains last week. A serious pullback has yet to be seen and the VIX is managing to hold fairly close to the sub-40 lows. Faced with a deluge of earnings, investors are picking their way through a mass of mixed earnings news and forecasts and displaying a more symmetric reaction to good/bad news than in past months.

STRESSES
- The U.S. financial stress testing timeline will put the focus back on the health of financials. Results, which are expected to point out banks’ varying ability to cope with a severe recession, are due out on May 4 and the financial industry is already flagging the risks of failing to spell out what would happen to the weaker links in the chain. Stress test results and any rumours or leaks before publication could prompt volatility.

DATA FLOW
- The release of advance Q1 U.S. GDP will offer investors a clearer sense of whether worst is in the past and could point way to what might feed any eventual “green shoots” of recovery. In the euro zone, national and regional sentiment indicators will point the way to firms’ and consumers’ mood at the start of Q2.

MONETARY POLICY
- Central bank meetings will be held in the U.S., Japan, and New Zealand. RBNZ is the only one of three with room to cut rates and there is some speculation that a more aggressive gesture could be on the cards to rein in markets, which are pricing in New Zealand rate hikes for next year. With the ECB due to outline any “unconventional” policy steps it might take on May 7, investors will scrutinise ECB officials’ comments for insight on what the consensus is building around.

FISCAL SPILLOVERS
- Fiscal stimulus in China looks to be filtering through to the real economy rather faster than in the developed world, prompting banks to upgrading China growth forecasts and investors to assess whether there will be a knock-on beneficial effect for commodity-producing emerging markets, which had suffered disproportionately due to the slump in global demand. Such a spillover effect is expected to especially benefit the Russian and Brazilian markets which have already rebounded.

(Reuter photo: Fayaz Kabli)

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