Global economy of week of 2nd Nov 2009

Global Economy Week Ahead

The US equity indexes were down on Friday in heavy volume. There were several negative developments on Friday. One of the main developments probably surrounded Citigroup and financial firms in general. Also, news of bankruptcy by CIT Group probably reinforced the sell-off in equities. Separately, the dour September US income and spending data possibly injected additional caution into the economic recovery.

A heavy calendar of events this week suggests that markets are probably in for a rough ride. The ISM releases during the first three days might come-in slightly better than consensus. The October employment report might be relatively mixed, with risks of better than expected headline payrolls, but worse than expected headline unemployment rate. The major central banks, Fed, Bank of England and European Central Bank are also scheduled to meet this week.

Strategy:

The latest sell-off proved to be another buying opportunity for bargain hunters. The firmer undertone after the test for support should enable a moderate recovery to higher ground. The outlook for the month ahead may still hinge on the pace of economic recovery and the employment market in the US in particular. The Federal Reserve will provide some hints about possible adjustments to its monetary policy after Wednesday's FOMC meeting. Politically, US president Barack Obama's first visit to China may open up talks to promote a trade balance between the two nations. Rather than setting import restrictions, a better balance could be achieved by allowing more capital and tourists from the mainland to the US. The implications for the greenback would have an important bearing on stock markets.