The earnings outlook for many Australian companies depends on the next move in interest rates. Building products group James Hardie is expected to produce poor second quarter figure today because of the impact of the US housing slump.
Stocks likes of Westfield have seen their share price sliced because of the US slow down and the surge in the value of the Australian dollar.
The dollar ended at 89.30 US c on the weekend, up from the 88.56 here on Friday, but down from the previous Friday of 92.85 US in Sydney.
US retailers report sales figures very quickly, within days for the first weekend; while the online retailing industry also produces early figures speedily. With retailing already ailing and showing signs of stalling, it will be a vital period.
Weak growth figures will lift pressure on an apparently reluctant Fed to cut rates next month for the third time in as many meetings.
But before then on Tuesday night our time, the US Federal Reserve releases the minutes of its latest meeting, and it will also release the first of new quarterly cycle of economic forecasts and projections.
The forecasts won't add much first up, the minutes of the October 31 meeting will however, especially about the seeming linking of inflation and the subprime financial crisis as the two main factors affecting the economy, and giving them roughly equal importance..
After last week, a rate cut is already booked in to the schedule by the market, although it seems from comments by a Fed Governor on Friday, that there might not be a reduction.
But his comments came as a couple of bits of information were still being digested by the market: a fall in industrial production in October, and a downgrade in earnings and outlook by the giant US transport company, Federal Express.
The fall in industrial production in October was the biggest in the US for nine months, reflecting a fall in utility output and continued troubles in car and housing-related industries.
The Federal Reserve, which released the figures, said that output at America's factories, mines and utilities fell by 0.5% last month, much worse than had been expected by the markets. Manufacturing output also fell.
Then Fed Ex, which is America's second biggest transport group, cut its financial-year profit outlook for a second time, citing high fuel costs and a trucking slump that has had more of an impact than previously forecast by the company.
FedEx says its fuel costs have risen 8% since late September and the lag in increasing fuel charges have proven too slow to have an impact when the oil and fuel price has been rising daily.
On top of this the number of less than truckload movements has fallen because of the slowdown in housing, retailing and cars: auto part shipments are down and FedEx's overnight freight movements have also been hurt.
The truck industry is tied into the broader economy in a way other industries aren't. Retailers use transport and retail sales have been sluggish for month: October's was only up 0.1% when price boosted petrol and other fuel sales were omitted.
Retailers like Pennys and Kohl's last week both cut earnings outlooks and warned of the gloomier outlook in 2008.
The Fed's industrial production figures was the biggest since a similar drop in January, and a sharp plunge in output of electricity and natural gas due to warmer-than-normal weather during the month, was a major factor.
The third straight fall in car plants and further weakness in industries producing timber, appliances and other products tied to housing, were also contributing factors.
Looking at these figures and the retail sales, some US economists now say the chances of the US economy slowing to halt in the March quarter is now very real.
The Fed has cut interest rates twice since September but Chairman Ben Bernanke has sought to lower expectations for further rate cuts by saying the risks of weaker economic growth are roughly balanced with the risks of higher inflation that could be triggered by the latest surge in oil prices.
Fed governor Randall Kroszner seemed to support his chairman's stance in comments on Friday that made it clear that the US central bank was not planning to cut interest rates at its next meeting on December 11.
That was ignored by the markets after looking at the production figures and the FedEx comments. As well, they know important figures on the health of US housing are out this week and next.
Figures late last week confirmed that core consumer inflation at 2.2% is the highest for 14 months. But while not a problem, the worry seems to be the gathering impact of higher oil prices and the lower US dollar.
Mr Kroszner said: "the downside risks to growth now appear to be roughly balanced by the upside risks to inflation" and added that data and information since the Fed's October meeting "have not changed my thinking in this regard".
Mr Kroszner said that in the near term "the economy will probably go through a rough patch" with falls in house prices, home construction and subdued consumer spending.
"Looking further ahead, the current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer run sustainable rate," he said.
"The current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate," Kroszner said in a speech in New York. He said that figures consistent with such growth "would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate."
The comments are the most explicit message from a Fed member since the October 31 rate cut that the central bank is reluctant to lower borrowing costs further. Federal Reserve Bank of St. Louis President William Poole, in an interview with Dow Jones, said figures on economic growth in the fourth quarter will be ``irrelevant'' to next month's decision unless they offer indications for next year. Poole voted in favor of last month's rate cut.
Separately, Atlanta Fed President Dennis Lockhart said in an interview with Bloomberg that the U.S. slowdown this quarter may persist into next year and that officials will "take very seriously anecdotal information'' from contacts.
Macquarie Bank interest rate strategist, Rory Robertson said on Friday: "US Treasury yields dropped sharply again on Thursday. The two-year note now is 3.32% - compared with the funds rate at 4.5% - and many other markets again are looking a bit shaky. Not everyone is as confident as many Fed Presidents that the next cut in rates can wait until at least the end of January. (What some observers don't seem to get is that overall financial conditions are not necessarily easier - when credit availability is tightening - just because the funds rate now is 4.5% rather than 5.25 %.)
"My longer-term guess remains that the Fed funds rate will be cut from 4.5% to 3.75% or less over the coming year, with the FOMC responding in its usual way to the ongoing downtrends in trend inflation, home prices and jobs growth, and to the emerging uptrend in unemployment. Over the coming year, the US Treasury yield curve looks set to steepen further."
That steepening yield curve is signalling recession.
