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New York: The bears have Wall Street cornered and they just won't let go. The coming week is almost sure to be a rocky ride for the US stock market as investors fret about the stability of Fannie Mae and Freddie Mac, the government-sponsored home finance companies.
Barring any news or development, say over the weekend or early next week, that quashes fears of capital constraints at Fannie and Freddie, analysts and money managers said US stocks were set to fall further into the bear market's arms.
Wall Street's eyes and ears will be trained on Federal Reserve Chairman Ben Bernanke this week, when he will appear twice on Capitol Hill to give his semi-annual testimony on monetary policy.
He will testify on Tuesday before the Senate Banking Committee, and on Wednesday, before the House Financial Services Committee.
Investors will zero in on anything Bernanke says about Fannie and Freddie, in addition to his take on the US economy, inflation and interest rates.
"The bottom line is that we're in the middle of a financial tsunami. This is a storm the likes of which this country hasn't seen," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "The market right now needs to see results. It no longer gives anyone the benefit of the doubt."
Fannie Mae and Freddie Mac, which own or guarantee about one in every two US mortgages and package them into bonds, are confronted by mounting losses from loan delinquencies and foreclosures.
Investors fear that if they are hampered from doing business, the paralysis will only make the housing crisis get worse.
Torrent of numbers
The coming week also will be filled with a torrent of numbers from quarterly earnings reports and economic indicators. It will be one of the busiest weeks for quarterly earnings, with reports due from Dow component Citigroup, the No 1 US bank, and technology bellwether Google, the leading Web search company.
Making the terrain even more treacherous for stock investors are concerns about oil's jump on Friday to a record above $147 a barrel and worries that this week's data on consumer and producer prices may show rising inflationary pressures. As a result, there appears to be little that could comfort investors in the short run.
Economic reports to watch include the US Producer Price Index and the Consumer Price Index, industrial production and capacity utilisation, and housing starts.
"I have my helmet on and my body armour on today. We expect it to be another volatile week with the market reacting to a triple play of earnings, oil and the mortgage agencies," said Frederic Dickson, senior vice president and market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.
"The market is going to remain nervous, watching developments with oil and tensions in the Middle East, and the avalanche of earnings and outlooks that will really start to hit the tape with banks and tech companies next week."
US crude oil futures shot up more than two per cent on Friday as geopolitical concerns over Iran's nuclear work and supply worries combined to lift prices to an all-time high.
The government's report on the US Producer Price Index for June is scheduled for Tuesday, followed by June CPI on Wednesday, when the Federal Reserve also is expected to release the minutes from its most recent policy-making meeting on June 24-25.
At that meeting, the Fed held its benchmark fed funds rate for overnight bank lending at two per cent.
Economists polled by Reuters forecast that overall PPI will increase 1.3 per cent in June, following May's gain of 1.4 per cent. Core PPI, excluding volatile food and energy prices, is expected to gain 0.3 per cent in June, after rising 0.2 per cent in May.
The forecast for overall June CPI is up 0.7 per cent, compared with a 0.6 per cent gain in May, while core CPI is forecast to increase 0.2 per cent, matching May's gain.
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