Stocks swung up and down last week in the most violent pattern on record in the United States. This week there will be plenty to keep markets rocking.
Investors will be especially interested in getting more details about growth prospects for major economies, following the shock that the U.S. economy is closer to falling back into recession than previously thought.
On Tuesday, we will see the latest GDP figures for Europe. We will also get the U.S. industrial production and capacity utilization numbers for July.
The latter are expected to inch up, assisted by better car sales and higher electricity output during the heat wave. Any disappointment could spook investors, given that earlier in the month the Institute for Supply Management's manufacturing index for July unexpectedly sank to 50.9. The score is very close to the threshold of 50 that marks the difference between expansion and contraction.
Likewise, the Philadelphia Fed Survey for August, which is widely followed as an indicator of manufacturing sector trends, will be closely scrutinized on Thursday. While the consensus is for a small rise, the research firm Capital Economics is calling for a decline, noting that recent economic and political uncertainties may have caused companies to delay big decisions on investment.
We also get the latest CPI numbers for the U.S. and Canada on Thursday and Friday. But with the U.S. Federal Reserve having just established an ultralow interest rate policy through the middle of 2013, the markets aren't particularly concerned about inflation.
U.S. retail giants Wal-Mart Stores Inc., Target Corp. and Sears Holding Corp. will post quarterly results. Surprises could move markets, but the figures have already been overtaken in one respect, with data released last Friday showing that in July retail sales rose by the greatest amount in four months.
French President Nicolas Sarkozy and German Chancellor Angela Merkel are scheduled to hold an emergency meeting Tuesday to discuss ways to strengthen governance of the euro zone. Widening contagion of European debt problems was one of the principal reasons for this latest round of market turmoil, says Sherry Cooper, chief economist at Bank of Montreal.
She expects that France and Germany will eventually support a unified fiscal policy for Europe. But the issue of whether the stronger states will be willing to subsidize the weaker ones is deeply political and will take time to work out, leaving markets to fret over fears of contagion for a while longer, she says.
Another key cause of the recent market volatility was the latest GDP figures on July 29, which showed the U.S. was crawling out of recession more slowly than realized, Ms. Cooper said. She has reduced her growth expectations to 1.7 per cent for the U.S. economy this year, down from more than 2.5 per cent. Canada's GDP should expand by to 2.4 per cent this year, she said, noting however that the Canadian economy is likely to grow less than the U.S. economy in the second half of this year.
Given this low-growth environment, stock markets had developed "unrealistic" expectations leading up to the turmoil last week, said Paul Taylor, chief investment officer at BMO Harris Private Banking. "We are probably through the worst of the equity event here, but there will be some choppiness as we go forward," he said.