Reactions to the G-20 statement can shape the trend in financial markets on Monday but for the rest of the week there might be real facts than words which determine the sentiment. Politicians in the U.S. are under pressure to find a solution for the troubled auto industry which has the potential to cost millions of jobs. The Senate may review a rescue plan as soon as Monday and any progress could affect equity markets as well as oil, commodity and currency markets.
World leaders ended their summit in Washington expressing the necessity and their willingness to support the economy. G-20 members pledge to fight recession not just by cutting interest rates but in combination with appropriate fiscal policies and enhanced regulatory standards. However it was more a general discussion, the outcome was highly anticipated, and stimulus packages from countries like China were already announced.
Inflation in U.S. and Europe
Inflationary pressures continue to ease at the cost of sharp slowdown in global economic activity. A Wednesday report from the U.S. Department of Labor is expected to show that the Consumer Price Index fell sharply in October from 4.9 to 4.1 percent annually.
Producer Price Index, another gauge of inflation but at production side, is also expected to fell as much as 1.8 percent in October reflecting the continuing decline in oil and other commodities prices.
Having some relief in price pressures could be encouraging to the markets should it raise expectations for even more rate cuts by the Fed.
Central Banks Minutes
CPI in the U.K. is also expected to fell from 5.2 to 4.9 percent annually, a Tuesday report may show. A day after, the minutes of the BOE Monetary Policy Committee could explain how deep the policy makers were concerned about the risk of falling inflation below 2.0 percent target in the medium term, when they decide to surprise the markets by a 1.5 percent interest rate cut.
FOMC Minutes on late Wednesday may have little impact considering recent signals by the Fed Chairman Bernanke expressing readiness to take action again.
Last week GDP figures put Germany officially in recession when other reports on Friday are expected to show continuing weakness in the largest European economy. Purchasing Manager indexes probably fell again in November to 42.0 and 47.6 for manufacturing and service sectors respectively; a reading below 50 reflects contraction.
PMI figures will be also released for France and Euro-Zone at the same day. France escaped an official recession last week by an anemic 0.1 percent growth in the third quarter however such data could show that negative numbers are just ahead!