The markets will be watching for recession red flags starting Monday, but a holiday-shortened week will bring little in the way of economic data.

Perhaps more telling for investors will be whether or not the slide in the credit markets that took hold late last week continues.

Risk premiums in several debt markets rose at the end of the week, as investors became increasingly concerned about how the housing market recession may be spilling over into the broader economy.

Economists weren't shy about their new, gloomy outlooks. Jan Hatzius, chief economist for

Goldman Sachs

(GS) - Get Report

, estimated in a research report that credit market losses due to outstanding mortgages have ballooned in recent months to about $400 billion.

If that came true, "the macroeconomic implications could be quite dramatic," Hatzius writes. Financial institutions would need to "scale back their lending by $2 trillion," he continues, adding that the key to getting from $400 billion to $2 trillion is the amount of leverage in the system.

Data on October's housing starts and building permits come out Tuesday, along with the minutes from the Oct. 31 meeting of the Federal Open Market Committee. In that release, the Fed will serve up its first new and improved forecast.

Federal Reserve

Chairman Ben Bernanke outlined last week that the Fed will issue details on its forecast four times a year, instead of just two.

Investors are keen to get a sense of the Fed's intentions regarding monetary policy, as recent Fed speakers and some economic data point to a greater risk of stagflation, or slowing growth amid rising inflation pressures. Fed officials have flip-flopped of late on whether or not the 75 basis points of interest rate cuts since September are all that's necessary.

The Fed and investors always pay close attention to inflation expectations to get a read on interest rates, but in an uncertain economic environment, consumer sentiment is also telling. Next Wednesday, the University of Michgan's November reading is due. Analysts expect a relatively low 75, but within the report, consumers' expectations for job stability and inflation will be closely watched.

The companies tied closely to a housing-driven credit market meltdown may continue to see their stocks and bonds fall, which may also foretell greater credit market declines.

Traders will be watching shares of

Fannie Mae

(FNM)

next week, after the stock

fell to a new 52-week low Friday on a

Fortune

magazine report that questioned how the company accounts for its credit losses.

Likewise, a slow-brewing selloff in municipal bond markets boiled up renewed concerns that financial guarantors such as

Ambac

(ABK)

and

MBIA

(MBI) - Get Report

may face damaging ratings downgrades that could bring the credit crunch to the so-called safe municipal bond market.

Last, investors would be wise to keep an eye on the financial sector in the high-yield bond market, where the debt of GMAC mortgage subsidiary ResCap has slid to distressed levels between 50 and 71 cents on the dollar, on concerns that the mortgage lender's liquidity remains in jeopardy.

Bonds of

Countrywide Financial

(CFC)

likewise fell Friday, dropping to about 68 cents on the dollar on one of its bonds. Countrywide's credit rating remains investment-grade, but has recently come under scrutiny by the agencies given the mortgage market's prolonged problems.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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