Janet Yellen starts her first week as US Federal Reserve chairman, succeeding Ben Bernanke, as she is sworn into office today at a time when the domestic economy looks in decent shape but China's is showing signs of crumbling.
The latest US employment data due in the coming days will provide further clues as to whether policy makers, now under Yellen's stewardship whose appointment began on February 1, will feel compelled to continue cutting their stimulus in US$10 billion increments per FOMC meeting, as is expected.
The Fed last week said it would cut its monthly bond purchases by another US$10 billion, as had been widely anticipated, and following a similar cut announced at its December meeting. The latest downgrade reduced the program to US$65 billion.
The ADP employment report is due on Wednesday, followed by weekly jobless claims on Thursday, and the all-important non-farm payrolls report for January on Friday. The latter is expected to show the unemployment rate held steady at a five-year low of 6.7 per cent as companies added more than double the measly 74,000 jobs they did in December.
Wall Street posted a loss for the first month of 2013. In January the Dow Jones Industrial Average shed 5.3 per cent, while the Standard & Poor's 500 Index dropped 3.6 per cent, and the Nasdaq Composite Index slid 1.7 per cent.
Last week did not help. In the past five days, the Dow lost 1.1 per cent while the S&P 500 gave up 0.4 per cent against a backdrop of a slide in equities and currencies of emerging markets amid signs of slowing growth in China. Both the greenback and US Treasuries benefitted.
"China has now become the second-largest economy in the world with a GDP that is more than half that of the US and since 2008 has functioned as the engine of global growth," Robbert Van Batenburg, director of market strategy at Newedge USA in New York, told Reuters. "If this escalates into a credit crisis that causes Chinese economic growth to come to an abrupt stop, it will impact almost every nook and cranny of the global economy."
Still, few expect an escalation at this stage.
"That we didn't really get even an acknowledgment of the selloff in emerging markets by the Fed shows that it sees little risk of contagion at this point," Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange, told Bloomberg News.
Closer to home, there was reason for caution. Apple and Amazon were among American companies reporting earnings that disappointed, their shares slumping about 8 per cent each for the week.
But there was evidence of bright outlooks too. Facebook was among those reporting upbeat outlooks, boosting its shares by 15 per cent.
With half of the S&P 500 companies having reported earnings so far, almost 70 per cent have topped earnings expectations, while two-thirds have surpassed estimates on revenue, according to Thomson Reuters data.
The coming days will bring earnings reports from Walt Disney, General Motors, Merck, UBS, Credit Suisse, and Twitter.
Other US economic data this week will arrive in the form of motor vehicle sales, the PMI manufacturing index, ISM manufacturing index, and construction spending, on Monday; factory orders, on Tuesday; the ISM non-manufacturing index, on Wednesday; and consumer credit, on Friday.
In Europe, the Stoxx 600 Index dropped 0.7 per cent last week, bringing its decline for the month of January to 1.8 per cent.
Policy-making committees of the European Central Bank and the Bank of England gather this week, though neither is expected to announce an adjustment to their record low interest rates.