Fresh data about the weak-kneed housing market and a two-day Fed meeting are highlights in a week that investors enter with anxiety.
Real estate data looms large this week, with the National Association of Home Builders survey Monday, followed by housing starts for February Tuesday, and existing home sales for February Friday.
The Federal Open Market Committee begins a two-day meeting Tuesday and issues its statement Wednesday. It is widely expected the Fed will make no move on rates, but it could change its statement.
"I think they're going to make a note of the somewhat weaker economy. They're going to make a note of the mortgage market being bad, but I think they're going to keep their inflation bias in place ... and take no move," says CNBC Senior Economics Correspondent Steve Liesman.
While U.S. investors have been focused on the Fed's interest rate discussions, the place traders will watch this week is really Japan. The Bank of Japan has rate discussions of its own and will have a press conference Tuesday.
Our Rick Santelli says the Bank of Japan is not likely to make a rate move now but it is widely expected to do so in the not too distant future. "Even if they don't raise rates, when they have their press conference, they may talk as if it is right around the corner and that will keep it right in front of the market place," said Santelli.
Rising Japanese rates would push the yen even higher and crimp the "carry trade," which has helped investors borrow cheap money to invest in other assets around the world.
Meanwhile, China over the weekend raised its key interest rates by more than a quarter percentage point in a move to cool its rapid economic growth. The 0.27 percentage point hike is the fourth in 12 months and will take lending rates to 6.39%.
Subprime mortgage debt delinquencies jumped and stocks slumped. The volatility in last week's market shook investors to the point where some wild-eyed selling took hold mid week. But by Friday, the market was lower but not dramatically so. The Dow was off 1.4% for the week, the Nasdaq fell 0.6% and the S&P 500 fell 1.1% for the week.
The mortgage meltdown will no doubt continue to make headlines this week. Investors will sort through the news, looking to see if the subprime blaze will simply turn into a smoldering brush fire or if it's the beginning of a credit driven forest fire. James Grant, editor of Grant's Interest Rate Observer, wrote a piece in the Sunday Washington Post "The Party's Over: Borrowers, Beware" which defined the issues. In the article he notes that borrowing costs will rise as a result of the subprime clampdown and discussed the tighter standards we've already been seeing. He warns that the spillover could beyond the $8 trillion mortgage market, noting the "no-down-payment, no-documentation interest only mortgage loan has its counterparts in most branches of American finance."
Liesman will continue to delve into the economic implication of these issues this week, and Diana Olick will report on all the real estate data. See Olick's very good column, Realty Check, on subprime lending and the feedback she got from readers. You can also see CNBC viewers' response to our question on "Who is to blame for the subprime mess?" on CNBC.com.
Credit conditions will be front and center with the Fed after Wednesday's FOMC meeting ends. On Thursday and Friday, the Federal Reserve Bank of Richmond hosts the 2007 Credit Markets Symposium. Participants include Richmond Fed President Jeffrey Lacker, New York Fed President Timothy Geithner and Federal Reserve Board Governor Randall Kroszner. On Friday, Lacker moderates a panel on "liquidity risk in the credit markets" at the symposium, and Geithner gives the closing remarks.
The Fed also holds a credit derivatives conference in Washington on Thursday, where Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn will speak.
Not so Private Equity
Thanks to our David Faber's diligent reporting, the world learned Friday morning that one of the biggest powerhouses on Wall Street is talking to bankers about a big stock offering. Private equity firm, Blackstone Group, which specializes in taking companies private is now considering making its own operations very public with a stock offering.
Hidden in the shadows of Wall Street (granted very rich shadows), Blackstone now considers putting itself before investors along side the likes of Goldman Sachs and Morgan Stanley . What we wonder is does this mean a top for the market if Blackstone wants to price itself now? We also expect to see a gold rush by its private equity brethren anxious to cash in on the public market before the potential for mega profits dries up. One also wonders whether the type of buyouts Blackstone will consider in the future could change as it starts to care what the impact will be on its quarterly earnings cycle.
Speaking of earnings on Tuesday, Oracle and Adobe report. Morgan Stanley and FedEx earnings are reported Wednesday, and General Mills reports earnings Thursday.
Tuesday marks the fourth anniversary of the U.S. invasion of Iraq. The United Nations considers new sanctions against Iran this week. Also, Secretary of State Condoleezza Rice meets with foreign ministers of Saudi Arabia, Egypt, Jordan and the United Arab Emirates.