The local market is likely to fall 60 points, or around 1.2 per cent, at the open. A number of factors will drive the decline, including the sliding oil price, which will hurt energy stocks. Material stocks look likely to start the week in negative territory following declines in BHP Billiton and Rio Tinto in London trade at the end of last week.
MYEFO will likely add more uncertainty, and lighter volumes should see more volatility this week. The Aussie dollar will also be closely watched.
In US economic data, consumer sentiment rose from 88.8 to 93.8 in December - a near eight-year high. The survey's barometer of current economic conditions rose from 102.7 to 105.7 -- highest level since February 2007. The survey's one-year inflation expectation rose from 2.8 per cent to 2.9 per cent.
European shares fell on Friday and posted their biggest loss since mid-2011. The ongoing slide in the oil price once again hurt energy producers. The STOXX oil & gas index fell 3.6 per cent on Friday. Shares in companies exposed to Russia also fell sharply after the Russian Rouble fell to a new low against the US dollar. Greek stock markets continued to slide ahead of the early election. The ATG Greek stock index has lost more than 20 per cent in a week. The FTSEurofirst 300 index fell by 2.6 per cent, the German Dax fell by 2.7 per cent, while the UK FTSE fell by 2.5 per cent. For the week the FTSE 300 lost 5.9 per cent. In London trade shares in BHP Billiton lost 2 per cent while Rio Tinto gave back 2.4 per cent.
US sharemarkets slumped on Friday as concerns about global growth hurt sentiment. The fall in oil prices resulted in the S&P energy sector falling 2.2 per cent. Mixed data out of China added to the weakness, with the S&P material sector losing 2.9 per cent. The CBOE Volatility Index rose by 5 per cent. At the close of trade, the Dow Jones fell by 316 points or 1.8 per cent. The S&P 500 index was down by 1.6 per cent and the Nasdaq lost 55 points or 1.2 per cent. For the week, the Dow lost 3.7 per cent and the S&P fell by 3.5 per cent while the Nasdaq lost 2.7 per cent
US treasuries rose on Friday (yields lower) as the slide in the oil price hurt equities increased demand for safe-haven US debt. Concerns about disinflation added to the slide in yields. US 2 year yields fell by 6pts to 0.544 per cent while US 10 year yields fell by 9pts to 2.084 per cent. Over the week US 2-year yields fell by almost 9 points while US 10-year yields fell by 17 points.
Major currencies were mixed against the greenback in European and US trade on Friday. The euro lifted from lows near $US1.2380 to highs near $US1.2480, and was around $US1.2470 in late US trade. The Aussie dollar fell from highs near US82.95c to around US82.25c and closed US trade near US82.50c. And the Japanese yen eased from 118.10 yen per US dollar to ¥119.05 and was near ¥118.70 in late US trade.
World oil prices slumped on Friday to fresh 5-year lows, after the International Energy Agency slashed its global demand outlook for 2015 by 230,000 barrels to 900,000 barrels. Brent crude fell by $US1.83 or 2.9 per cent to $US61.85 a barrel while the US Nymex crude price fell by $US2.14 or 3.6 per cent to $US57.81 a barrel.
Base metal prices were mostly higher on the London Metal Exchange on Friday with the exception of aluminium (down 0.8 per cent) and zinc (down 0.1 per cent). Gold fell with Comex gold futures down by $US3.10 an ounce or 0.3 per cent to $US1,222.20 per ounce. Iron ore fell by US10c to $US68.70 a tonne on Thursday.
Ahead: In Australia, data on motor vehicle sales are released alongside the Mid-Year Economic and Fiscal Outlook. In the US, industrial production, the Empire manufacturing gauge, and the NAHB housing market index are released.
Savanth Sebastian is an economist at CommSec.