Ben Bernanke will face some tough questions on whether the unpalatable option of nationalising the US banking system is being actively considered by policymakers when the chairman of the Federal Reserve delivers his testimony on monetary policy to Congress this week.

Mr Bernanke is likely to stress that the US government is prepared to take all possible steps to revive the economy and he will provide more details on policy efforts to improve credit conditions, possibly including a shift towards buying US Treasuries in an effort to lower long-term interest rates.


Investors will also hope Mr Bernanke can soothe shattered nerves but this week promises another onslaught of dire economic data that will batter confidence anew.

US property prices look set to weaken further with the year-on-year decline in the Case-Shiller measure of 20 metropolitan areas, due tomorrow, expected to increase from -18.2 per cent in November to -18.3 per cent in December.

Existing home sales for January, due on Wednesday, are expected to show a modest increase from 4.74m (annualised) in December to 4.82m, while new home sales, due on Thursday, are expected to dip from 331,000 to 329,000.

The weak state of the US property market and rapid rise in unemployment have already dragged US consumer confidence to a record low. The Conference Board measure, due on Wednesday, is expected to fall from 37.7 to 36, its lowest since the series started in 1967. The US labour market has continued to shed jobs, with initial jobless claims expected to remain above the 600,000 mark in the week ending February 21 at 620,000, a marginal improvement on the 627,000 recorded in the previous week.

On Friday, revised gross domestic product will show the US recession has been more severe than initially thought. The contraction in fourth-quarter GDP is likely to be revised from -3.8 per cent (annualised) to -5.4 per cent following revisions to construction spending and business inventories data.

In Germany, the IFO business climate survey, due out tomorrow, is expected to stabilise at 83.2 in February from 83 in January. However, there is a clear risk the IFO survey will weaken further as industrial orders have fallen sharply as global trade shrinks.

The German economy shrank by about 2.1 per cent in the final quarter of 2008, and the revised data released on Wednesday will detail the extent of weakness in consumer spending, investment and exports.

Germany’s unemployment rate is likely to rise from 7.8 per cent in January to 7.9 per cent in February, while consumer confidence will weaken in March. Both figures are due on Thursday.

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