View Full Version : Stimulus hopes versus bad data

01-04-2009, 09:51 PM
Sun Jan 4, 2009 11:47am EST

By Walter Brandimarte

SAO PAULO (Reuters) - A slew of bad economic data is expected to keep emerging-market investors at bay this week, unless governments come to the rescue with additional stimulus packages to jolt the global economy out of recession.

Hopes that U.S. President-elect Barack Obama this week may unveil details about a massive stimulus plan to ease the country's financial crisis already supported emerging markets in the first session of 2009. The MSCI stock index gained more than 2 percent on Friday, after losses of more than 50 percent in 2008.

Emerging-market currencies also strengthened on Friday, while yield spreads between emerging debt and U.S. Treasuries, a key gauge of risk aversion, tightened 31 basis points to 659 basis points on the J.P. Morgan EMBI+ index.

But trading volumes were dismal after the New Year's holiday, and investors will likely find a new batch of bleak economic data when they return to the market this week.

"I think the stimulus package is something that is positive but will not have much of an effect. I think there will be a lot of pork-barrel spending and that is something that in the long run could actually be negative to the U.S. economy," said Kathryn Rooney, senior emerging-market strategist at Bulltick Capital Markets in Miami.

"The U.S. will be in recession for the full year," she added, arguing that Friday's "devastating" figures for U.S. factory activity in December are a good indication that there will be further cuts in manufacturing employment, production and investment this year.

The U.S. Institute for Supply Management said on Friday its index of national factory activity fell to a 28-year low of 32.4, weaker than economists expected.

Among the key U.S. economic indicators due this week are the ISM services index on Tuesday, motor vehicle sales on Monday, and non-farm payroll employment on Friday.

In Latin America, investors will focus on Monday on the minutes of the Colombian central bank meeting, which ended with a larger-than-expected interest rate cut of 50 basis points, the first rate reduction since September 2005.

Other rate decisions will come on Thursday, when the central banks of Chile and Peru will have their monetary policy meeting.

(Editing by Leslie Adler)