Despite the continuing bad news about earnings, the global economy and rising levels of jobless, markets here and in most major economies are likely to start a major rally this week, providing a couple of conditions are met.
They are, firstly that the Obama stimulus package makes fairly rapid progress through the US Congress now there seems to be some sort of Senate agreement and secondly, that revamp of the banking bailout package, is seen to be credible.
Announcement of the banking bailout package has been postponed a day to allow tonight's Senate vote on the overall stimulus package to happen without any distraction.
The US Treasury revealed the day's delay early Monday morning, Australian time.
If both happen, then the tentative rebound which surfaced midway through last week could very well accelerate, dragging commodities and equities sharply higher, in the face of a continuing poor quality flow of news and official figures.
That hesitant rebound has come despite more big losses from Japanese companies, led by Toyota with a loss of over $7 billion estimated for the year to March; a further fall in consumer credit in the US for a record third month in a row; falling factory orders in the US, Asia and Europe and of course another terrible monthly jobs report from the US on Friday with 598,000 jobs going and almost 3.7 million since December 2007.
In fact Friday saw not only the US job figures (the worst in 34 years) but also German industrial output slump to its worst level since unification almost 20 years ago.
UK manufacturing production dropped 2.2% in December, and personal insolvencies increased in the fourth quarter as the recession deepened. The fall in industrial production in Germany was the biggest in almost 18 years.
It's further confirmation Europe's biggest economy is the most wounded from the slump, apart from the UK.
But markets across the globe, but especially in the US and Europe turned upwards, despite the continuing flow of adverse news.
Spurred by seemingly better news on the bank bailout and the stimulus packages in the US, investors want to see a rebound, it would seem.
Copper and several other commodities edged higher as well before a sharp jump at the end of last week.
Copper jumped more than 8% on Friday for instance and is now up 15% this year so far.
On top of this was a series of reports on manufacturing and service sectors for a number of economies which suggested that the sharp falls in December has tapered off in January.
Activity was still very weak, but the headlong falls (in areas like orders and exports) seemingly had slowed. Only the jobs outlook in the surveys was still weakening.
And there's growing signs that, despite rising bond yields in the US (the 10 year yield hit 2.98% Friday), the so-called spreads between different types of debt, government and private and different markets, are still narrowing, indicating easing pressures in credit markets.
Corporate bond issuances last month were at the highest for months and US corporate debt markers are re-opening independent of the Federal reserve's central facility for commercial paper.
In Australia our banks have issued over $4 billion in new bonds and other securities domestically in the past few months.
Australian companies are raising billions of dollars from share market investors who are buying the placements to lock in future profits because the dividend yields are so high (even taking into account, cuts to payouts).
The MSCI's all-country world stock index, boosted by Wall Street, Europe and Asia, enjoyed its seventh positive session in the past 10 trading days.
The index is trading in a range above the trough it hit last November, and despite a down month in January, it has not re-traced to that low.
But some analysts issue a caution or two: the worsening jobs figures, especially in the US, point to more pressures on US banks and their huge collection of debts.
So-called AltA mortgages, which sit between prime rated loans and subprime loans, are now turning toxic and defaulting at rates faster than some subprime securities. Credit card debt is going to worsen significantly as well.
Analysts point out there's some similarity now to last October in the belief that the collapse of Lehman Brothers and other financial pressures would produce a bailout package that would steady things.
Nothing of the sort happened as the package stumbled and economies in the US, Europe, Japan, Taiwan, South Korea, Singapore, the UK and Canada tanked sharply.
Several stimulus packages later in Asia, Europe, Australia and other economies, plus a ground breaking US election, and we are in deeper trouble than back in October.
Many investors it would seem, are sick of falling share prices and other negative news (aren't we all) and just want to have a rally.
Friday's rally in the US was unreal if you think about: shares rise in the expectation that the worst jobs figures for more than three decades will see a couple of stimulus and bailout packages passed, justifying a rebound, when all they are doing is confirming the extent of the terrible economic stresses still gripping the US.
By the way, 1.8 million jobs have vanished in the US since October, the US economy, Germany (Europe this week), Japan, South Korea and a host of other countries, have all seen economic growth contract sharply in both the December quarter and in the month of December.
The stimulus package was boosted by ambitious Democrats to nearly $US1 trillion, but narky Republicans (who refuse to accept their role in the problems), have forced it back to just $US712 billion. That is what it was two months ago, and around 1.2 million lost US jobs. But despite that, the markets want to go, so they have done the usual trick of ignoring reality and looking for the hint, such as the positive comments about Chinese steel makers stocks of unused raw materials (while ignoring job losses and continuing signs of stress in Chinese builders and exporters). First, there have been better-than-expected economic reports.
Last week pick up in China's official manufacturing index, coupled with a surge in bank lending brought cheers and hopes that the central government's stimulus efforts were taking hold.
Other relatively upbeat reports have included an unexpected improvement in business confidence in Belgium and Germany (but they ignored Germany's nasty slump in output in December) and the surprise surge in US existing-home sales. UK house prices edged higher in January, a major shock.
The Baltic Exchange Dry Index is up more than 100%, rising sharply in the wake of BHP's comments on China's steelmakers. But the Index is still depressed, compared with its absurdly high levels last March-May.
The MSCI world index is trading in a range above the trough it hit last November, a low it has not really threatened to sink to again despite a bearish January.
Reuters reported that its latest asset allocation polls showed equity holding still at an all time low and money being held in safer cash and bonds.
So how did markets do last week? In the US the Dow added 217 points, or 2.7%, the Standard & Poor's 500 rose 23 points, or 2.7% and Nasdaq jumped 45 points, or 2.9%, and closed at a one-month high. For the week, the Dow rose 3.5%, the Standard & Poor's 500 was up 5.2% and Nasdaq had its best week since early December, up 7.8%.
In Australia sentiment was buoyed by the federal government's $42 billion into the economy and the Reserve Bank's 100-basis-point interest rate cut and the ASX 200 rose 41.3 points, or 1.2%, but was down 2% over the week.
The All Ordinaries increased 34.9 points, taking its weekly loss to 2%. The futures market has our market opening up 85 points today for the ASX 200, or over 2%.
The Australian and New Zealand dollars were the best performers among the major currencies against the yen and the dollar. The US currency lost more than 3% against both the Australian and the New Zealand currencies.
The Australian dollar hit a session high of 68 US versus the greenback and traded at 67.49 USc in New York.
US bank shares rallied on Friday for the second session as investors looked to Monday's announcement on how the government will use the remaining $350 billion of the Treasury's Troubled Asset Relief Program
In Europe, shares rose with the Dow Jones Stoxx 600 Index erasing all of the fall so far this year.
The Stoxx 600 added 2.1% Friday, leaving it with 0.1% ahead for the year so far. It rose 3.8% over the week.
In London the FTSE 100 rose 1.5%, extending this week’s increase to 3.4%. The DAX index in Frankfurt jumped 2.97% and the CAC 40 in Paris was up 1.84%.
In Asia the MSCI Asia Pacific Index rose 1.1% It's still down 6.8% so far in 2009.
But it did add 0.4% last week, despite the rotten news from major companies in Japan (led by Toyota and Panasonic).
In Tokyo, the Nikkei was up 1.6% and in China; the Shanghai Composite Index climbed 4% to its highest level in four months.
The Index rose 9.6% last week, the biggest five-day advance since November. The CSI 300, which covers the Shanghai and Shenzhen bourses, gained 4%
It was the Nikkei’s second weekly gain with a 1% rise this past week.
In Hong Kong the Hang Seng index rose 3.6%, to take its advance for the (year) to 2.8%. It's still down 5.1% for the year so far.
In commodities, oil prices slid Friday in the wake of the terrible US jobless news.
The WTI March contract on Nymex fell $US1 to close at $US40.17 a barrel. In London, March Brent North Sea crude slipped 25USc to settle at $US46.21 a barrel.
Gold prices were little changed as shares rose on expectations the US Congress will pass a stimulus package to revive the economy. Silver gained.
Comex April gold futures rose 10c to $US914.30 an ounce after earlier falling up to $US8.80 and then surging $US7.70. The metal fell 1.5% this week after jumping 11% in the previous two weeks.
Gold for immediate delivery fell $US1.20, or 0.1%, to $US913.35 an ounce. March silver futures climbed 41c or 3.2% to $US13.16 an ounce. The metal rose 4.7% this week.
On Friday though, copper jumped sharply, rising the most in three months on speculation that the government spending plans worldwide will revive growth.
March Comex copper futures soared 12.85 USc or 8.6%, to $US1.6285 a pound. The price earlier touched $US1.6345, the highest since early December.
The metal jumped 11%, the biggest weekly advance since January 2. Copper is up 15%.
VMG Price at posting:
17.7¢ Sentiment: Buy Disclosure: Held
(20min delay)