Wall Street counts on rate cut

WALL STREET is counting on the US Federal Reserve to provide another monetary fuel injection on Tuesday and investors are likely to be disappointed if the Fed does not cut rates an aggressive half a percentage point.

Before last week's round of bearish economic data, the markets had priced in a smaller quarter-point move for the November Federal Open Market Committee meeting but the most recent data indicated consumers and businesses have fallen into a dangerous hibernation and the Fed may push harder to stimulate growth, economists say. In the past year, the Fed's overnight bank lending rate has been sliced 10 times to 2.5%, the lowest in four decades.

Cisco Systems and Qualcomm, two of last year's highest flyers, issue earnings figures this week but they will have to compete for investors' attention with the Fed and economic data from Washington. Cisco, a bellwether for the internet industry, is today expected to report that earnings plunged to two cents a share, from 18 cents a year earlier. Cisco, last year one of America's top two companies by market capitalisation, does not make the top tier now. The shares are off more than 70% in the past year.

Qualcomm, last year's biggest price gainer on Wall Street, is expected to report earnings of 25 cents a share, flat with the year-earlier period. Analysts and investors will be closely monitoring the firms' comments for any indication the environment for hi-tech equipment might improve in the fourth quarter or beyond. On Wednesday the Department of Labour releases critical productivity numbers for the third quarter, expected to be the weakest in many years as the 11 September disaster hit worker productivity.

Productivity is expected to be up 1% for the quarter, less than half the rate of the previous quarter, which itself was lower than has been the recent norm.

With the economy in negative territory, price pressure is expected to decline, which would be good news for the Fed as it will have more leeway to lower interest rates. The Producer Price Index, on Friday, is expected to show a decline of 0.2% as the decrease in demand at the wholesale level killed any price pressure in the pipeline.

Data supplied by Thomson Global Markets