Effects of shocks likely to persist this week

TERROR is at large in the world again and it's likely to express itself on the stock market in another volatile week.

The human cost of the attacks in Paris was heartbreaking. The economic costs for the "City of Lights" - and other Western metropolises - could also be considerable.

Neither has the shock of coming rate hikes worn off on the US stock market. US stocks gave up nearly half the gains accrued in seven straight weeks of gains last week as investors confronted the abyss of a new central bank policy yet again.

For the bulls, the ripple effects of last week's jobs report were depressingly familiar: emboldened by the report, the Fed tried to prepare markets for an imminent hike. That caused Treasury rates to rise and the dollar to strengthen, dollar-priced commodities and commodities-dependent emerging-markets currencies slumped, and stock markets worldwide went into panic mode.

The US economy is contending with another short circuit in the traditional expansion cycle. First, corporations were unusually slow in rebuilding their labour forces. That finally improved earlier this year.

Now, the nation seems to be feeling all the pain from lower oil prices without any of the positive side-effects. Economists are wondering when, if ever, consumers will increase their discretionary expenditure.

Early indications are that this year's peak shopping season will be a disappointment. Overall, sales in October hardly changed from a month earlier - if Christmas shopping is as restrained as Halloween shopping, it would bode ill for US growth, given that about a third of the economy reflects the contents of the consumer's shopping bag (physical or otherwise).

Even more worrying were the statements from two of the biggest and, in different ways, most important retailers of the age.

Macy's has come to represent the middle-market stores most hurt by the emergence of Amazon.com and its online superstore peers.

To compensate for slowing domestic traffic, the venerable department store began to cater to customers who could not just log on instead: foreign tourists.

Macy's has candidly admitted that it must look for new ways to make money, possibly milking its valuable real estate.

But Nordstrom, the Seattle department store, was supposed to have the complex modern consumer figured out. The company sells a mix of high-end and discount clothes and accessories in its stores - and, increasingly, online. Its brand has a reputation for being expensive without being ostentatious, in tune with the more understated mood of consumers chastened by the Great Recession.

Since 2009, Nordstrom has consistently exceeded growth expectations, quietly becoming an investor and consumer favourite.

That Nordstrom should warn, bluntly, that its sales growth hit a wall this summer and is unlikely to revive in the holiday season, made analysts sit up and take notice.

One money manager says the "energy dividend" will soon surface in consumer behaviour.

"They waited to start spending some of the savings from the lower energy prices," said Phil Orlando, chief equity strategist at mutual-fund firm Federated Investors. "I think that they're going to spend it during the Christmas season."

Between the lines of recent jobs reports, warned Quincy Krosby, market strategist at Prudential Financial, there are signs that the oil-boom communities are seeing major job layoffs.

In Texas, oilmen tell stories of "rig islands" - idled deep-water drilling platforms chained together in the Gulf of Mexico - and of "wildcatters" getting evicted from oilfields they refuse to leave to creditors. The wildcatters are desperately trying to hang on to their wells until the market storm passes, and the oil price rises again.

If the market is merely over-supplied, the shut-ins and idled rigs should deplete the glut in short order.

If, however, the main problem is slowing demand in China and elsewhere, the bear market in oil could be around for years.

"The question persists: are lower oil prices indicative of continued slowing of global economy," said Ms Krosby, of Prudential. "Or is it still a function of equilibrium between supply and demand?"

Some traders say fears about the impact of the dollar's rise are overdone. While large cap multinationals such as IBM and Procter & Gamble have warned of the punishing effect of foreign-exchange translation on their revenue in recent quarters, other US companies may benefit.

"Our counter argument is this - when you look at the much-broader market ... the bulk of US companies ... are small cap and mid cap in nature doing 80 per cent, 90 per cent of business here, so dollar strength is actually positive for them because it signifies stronger economic growth," said Mr Orlando, of Federated Investors.

Looking back at historical data, the stock market and the dollar often rise in tandem, Mr Orlando added.