Investors will look in the coming week for any signs of calm returning to distressed money and credit markets and await a signal from Federal Reserve Chairman Ben Bernanke on whether an interest rate cut is imminent.
Friday's surprisingly bleak U.S. jobs report, showing U.S. employers cut jobs for the first time in four years, bolstered the case for an interest rate cut from the Fed on Sept. 18, a step that many analysts say is fundamental to soothing markets.
A 4,000 drop in jobs in August contrasted sharply with expectations that companies would keep hiring, fraying investors' already strained nerves that the economy had been weakening before the credit crunch took hold around mid-August.
"It is going to be a funny week," said Kevin Grice, senior economist at American Express Bank in London. "There is not a lot of data due for release, the stress in credit markets will continue to be a key issue, and everybody will be following closely what Fed policymakers have to say
about what they want to do on Sept. 18."
Late Week Numbers
The only significant U.S. economic data comes out late in the week. Weekly jobless claims will be reported on Thursday. And on Friday. retail sales and industrial production numbers will be
scrutinised for any further clues about the Fed policy outlook.
A host of top Fed as well as European Central Bank (ECB) policymakers speak next week.
The highlights will be Bernanke's lecture on global imbalances in Berlin on Tuesday and ECB President Jean-Claude Trichet's special hearing on sub-prime mortgage crisis in front of a European Parliament committee in Brussels on the same day.
Ahead of that, Trichet and Bernanke will join a host of other policymakers at the Bank of International Settlements' (BIS) two-monthly meeting in Basel on Sunday and Monday -- their
first gathering since the credit crisis started in August.
Besides keeping a close eye on policymakers' comments, markets will keep looking for any signs of the credit market crunch letting up or the degree of illiquidity deepening.
Litmus Test for Markets
Next week, some $113 billion of commercial paper is estimated to mature and require new funding. That will present a litmus test to the availability of credit in the market, parts
of which have essentially ground to a standstill.
Concern about the credit crunch undermining business and consumer confidence and resulting in economic weakness has made markets scale back expectations of any near-term interest rate hikes in the euro zone as well as in many other major economies.
"Central banks do not appear to possess -- or be willing to use -- a magic bullet that would dissolve (the credit) issue," Steven Pearson, chief strategist at HBOS Treasury Services, said
in a note to clients. "The longer it is sustained the more likely that tightening cycles will be reversed rather than merely stalled."