Asian stock investors face a heavy batch of key U.S. data in the week ahead, putting the focus squarely on the health of the world's largest economy - Asia's biggest export market.
Further signs of a slowing U.S. economy will likely weigh on regional stock markets. Major data include gross domestic product for the second quarter, consumer sentiment and non-farm payrolls.
"People have been on the bullish side in the last couple of weeks, so maybe you'll see some of that squaring off," said Tim Rocks, equity strategist at Macquarie Securities.
"Payrolls is certainly always important and clearly there is a risk on the downside. It seems to me the U.S. economy is slowing rapidly now."
Data in the past week such as new and existing home sales have provided more evidence of a cooling U.S. housing market, fuelling concerns that demand for Asian goods will drop.Asian stock investors face a heavy batch of key U.S. data in the week ahead, putting the focus squarely on the health of the world's largest economy - Asia's biggest export market.
Tonight will be a quiet market in US with no economic data to report (boring).
Next week's reporting schedule below ... will be a very interesting week as summer hoilday ending in US and Europe too!!! Hang on for a wild ride - next week!
WASHINGTON (MarketWatch) -- The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.
Writing on his blog Wednesday, Roubini repeated his call that the U.S. would be in recession in 2007, arguing that the collapse of housing would bring down the rest of the economy. Read more.
Roubini wrote after the National Association of Realtors reported Wednesday that sales of existing homes fell 4.1% in July, while inventories soared to a 13-year high and prices flattened out on a year-over-year basis. See full story.
"This is the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices," Roubini said. The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.
And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.
Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s. His firm focuses largely on global macroeconomics.
While many economists share Roubini's concerns about imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.
Fed watcher Tim Duy called Roubini the "the current archetypical Eeyore," responding to a comment Dallas Fed President Richard Fisher made last week in referring to economic pessimists as "Eeyores," after Winnie the Pooh's grumpy friend.
"By itself this slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession," Roubini said.
Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.
In the past year, consumers spent about $200 billion of the money they pulled out of their home equity, he estimated. Already, sales of consumer durables such as cars and furniture have weakened.
"As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy," Roubini said.
Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels, he noted.
"This is the tipping point for the U.S. consumer and the effects will be ugly," he said. "Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."
He also sees many of the same warning signs in other economies, including some in Europe.
Rex Nutting is Washington bureau chief of MarketWatch.
A global slowdown was predicted by George Soros when he was in Singapore last year. Soros predicted consumption growth tailing off in the wake of a housing bust.The trouble according to Soros is the inability of the American consumer to borrow more. The US has a negative savings rate of 1.5% of GDP among households. It seems much of that is based on a double digit annual appreciation in the value of homes. That is a bubble. And the bubble is now in the process of reversing and much of the run up in housing values was based on speculation.
The latest US data has shown that home resales has dropped in July to lowest level since 2004. For 5 years running, home sales had hit record highs as low mortgage rates lured buyers.But the housing sector has lost steam this year as mortgage rates have gone up and would be buyers have grown cautious amid high energy prices and a slowing economy. If home prices and sales were to crash, that could spell big trouble for the economy.
With the housing market slowdown, the US Fed cannot raise interest rate further. That is why oil price must not go up further. If oil price continues to go up, inflation will go up. If US Fed raises interest rate to fight inflation, the housing market could possibly crash. When that happens, US consumer spending will suffer which will in turn affect the US economy as 2/3 of the economy depends on consumers. This could result in a "hard landing" for the US economy.
Then George Soros prediction could come true.......
Investors are worried any worsening of the conflict with Iran, the world's fourth-largest oil producer, could send crude prices higher.
After early gains, stocks took a turn for the worse after weak housing data sparked concern that a much sharper slowdown in economic growth was on the cards.
"This home sales number that came out was extremely weak, so weak that it upset the goldilocks theory," said Stephen Massocca, co-chief executive of Pacific Growth Equities. "The porridge has gone from being just right to being too cold."
Investors talk about a goldilocks economy when there is enough growth to sustain corporate profits and keep unemployment levels low, but not so much growth that it sparks inflation. The weak housing report may reinforce fears that the Federal Reserve has lifted interest rates to a point that has choked off not only inflation, but also growth, raising the specter of a recession.
Sales of existing homes plunged 4.1% to a seasonally adjusted annualized rate of 6.33 million, the lowest since January 2004, the National Association of Realtors said. Economists were expecting a decline to 6.56 million, according to a survey conducted by MarketWatch. The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3-month supply at the July sales rate, the highest since April 1993. See full story.
Data on sales of new homes in July are slated for release on Thursday. See Economic Preview.
NEW YORK (MarketWatch) - U.S. stocks traded lower Wednesday after sales of existing homes plunged to a two-year low, but Gateway Inc. remained a bright spot, rallying 14% after the computer maker received an offer for its retail operations, and a hedge fund bought a significant stake in the company.
Sales of existing homes plunged 4.1% to a seasonally adjusted annualized rate of 6.33 million, the lowest since January 2004, the National Association of Realtors said. Economists were expecting a decline to 6.56 million, according to a survey conducted by MarketWatch. The inventory of unsold homes rose 3.2% to a record 3.856 million, a 7.3- month supply at the July sales rate, the highest since April 1993.
"Today, the worry is whether we will slip into recesssion," said John Forelli, senior vice-president and portfolio manager at Independence Investments. The fear is that a cooling housing market will "cause a pressure on the consumer. In addition to higher energy prices, falling housing prices could put the brakes on consumer spending."
Over the past several years, consumers have been taking advantage of low interest rates and rising house prices to refinance their mortgages, and free up cash that has boosted their spending power.
Data on sales of new homes in July are slated for release on Thursday. See Economic Preview.
On the broader market for equities, decliners outpaced advancers by 4 to 3 on the New York Stock Exchange, and by 13 to 11 on the Nasdaq.
Advanced Micro Devices proved a bright spot, rallying on an upbeat market share forecast and a broker upgrade.
The Dow Jones Industrial Average closed down 5.21 points at 11,339.84.
The Nasdaq Composite Index overcame early weakness to close up 2.27 points at 2,150.02 and and the S&P 500 Index up 1.30 point at 1,298.82.
Advancers outpaced decliners by 19 to 13 on the New York Stock Exchange, and by 4 to 3 in the Nasdaq market. Volume was light with a little over 1.2 billion shares traded on the NYSE and about 1.59 billion in the Nasdaq market.
Steve Goldman, chief market strategist at Weeden & Co., said investors late in the day overcame their initial nervous reaction to Chicago Fed President Michael Moskow's warning that a pause in rate hikes this month may not mark the end to the tightening cycle.
"Initially, the Fed comments caused some hesitation," Goldman said. "And the was nearing new recovery highs - so there was a little bit of shakiness. But a lot of the pressure is being taken off the market by the lower [Treasury] yields that we've been seeing in the last few weeks."
"The market certainly rallied very hard last week on the expectation that the Fed is stepping aside," said Paul Nolte, director of investments at Hinsdale Associates. "So anytime anybody from the Fed says, 'we may not quite be done yet,' it's going to get the market nervous."
Moskow said his assessment of current economic conditions is "that the risk of inflation remaining too high is greater than the risk of growth being too low. Thus some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time." See full story.
Before Guynn's remarks, Jack Guynn, the president of the Atlanta Federal Reserve Bank, who is retiring on Oct. 1, warned his colleagues not to forget the lessons of the 1970s that inflation is "poisonous" to an economy.
"I am sure future policymakers will remember the lessons we learned in the past 40 years about what happens when you start down the slippery slope of trading inflation for growth," Guynn said in remarks prepared for delivery to the Kiwanis Club of Atlanta. See full story.
Iran was the other main focus of the market.
Iran's chief nuclear negotiator, Ali Larijani said his country is ready to begin "serious talks" with the U.S. and the five other Western powers that put together an incentive package designed to encourage it to end its nuclear activities. Larijani, however, did not make clear whether his country would abandon nuclear enrichment.
Larijani's remarks came after Iran issued its formal response to the package.
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