Investors may have a fairly quiet end to the federal election week, with little local economic data scheduled, while equity markets could make a run higher following expectations of a recovery in the US after the Thanksgiving Day Public Holiday.
The Australian share market ended one per cent lower for the third straight day on Thursday, again on negative leads from the US. Oversold Australian stocks may be helped by bargain hunting, with the Dow Jones industrial average considered to have corrected, after falling to its lowest point on Wednesday in almost one month. But shares of financial services companies may continue to come under pressure on persistent worries that losses from mortgage defaults and the housing slump may worsen.
AMP Capital head of investment strategy Shane Oliver said global share market conditions remain shaky. "Despite expectations of a slight bounce global share markets remained under pressure on worries about continuing problems in credit markets, asset write-downs and the global growth outlook," he said. Dr Oliver said BHP Billiton's play for Rio Tinto has continued to provide some support for Australian shares, but lower oil hit the energy sector. He said the correction in shares may have further to run, possibly another five per cent lower.
"However, the correction is likely to remain modest compared to the July/August falls and the broad trend in shares is likely to stay up," Dr Oliver said. He noted the Australian dollar is vulnerable to further weakness on the back of the global growth outlook and commodity prices. The data calendars in Australia and New Zealand are quiet in the week ahead with only second tier data releases expected. US markets were closed on 22 November for the Thanksgiving Day holiday.
Accordingly, the US data calendar is relatively quiet, with the highlight being the Federal Open Market Committee minutes where investors will look for clues on the US interest rate outlook. The strength of the US consumer will be tested this week, with the day after Thanksgiving traditionally one of the biggest shopping days of the year.
But concerns about the health of the American consumer are mounting amid ongoing credit and housing concerns. Saturday is the day when voters choose to elect Prime Minister John Howard or his opponent, Kevin Rudd, into power. It will be interesting to see if the result has any effect on the share market, given the strong focus of the campaign on economic management.