World Week Ahead: Fed meets, Apple reports
Jan 27 (BusinessDesk) – The US Federal Reserve is expected to announce a further easing to its monthly bond-buying programme this week, just as equity markets were spooked by signs of slowing growth in China and a sell-off of emerging markets’ currencies last week.
China’s factory output may contract in January, a preliminary Purchasing Managers’ Index from HSBC Holdings and Markit Economics released last week showed, fuelling concern that the world’s second-largest economy is losing steam again.
Last week Argentina devalued its peso, sending it into free-fall, while other currencies including Turkey’s lira, Russia’s ruble, Ukraine’s hryvnia, and South Africa’s rand also slumped on worries about the global economy.
In the past five days, the Dow Jones Industrial Average sank 3.5 percent, the Standard & Poor’s 500 Index dropped 2.6 percent, while the Nasdaq Composite Index shed 1.7 percent.
The Dow has now fallen 4.1 percent since the start of the year, while the S&P 500 has given up 3.1 percent.
In Europe, the Stoxx 600 Index declined 3.3 percent last week. The UK’s FTSE 100 retreated 2.4 percent, while Germany’s DAX sank 3.6 percent and as France’s CAC 40 shed 3.8 percent.
All the turmoil was good for gold, reviving its appeal as a safe-haven and boosting the price by 1 percent in the past five days. US Treasuries also benefitted.
“We are back to a flight-to-quality atmosphere, given the worries from emerging markets and China,” Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney, told Bloomberg News.
The Federal Open Market Committee will start its two-day meeting on Tuesday, the last gathering before Janet Yellen succeeds Ben Bernanke as Fed Chairman, and is expected to announce another US$10 billion cut to its monthly bond-buying program, eased to U$75 billion in January.
And that’s disconcerting to investors who have grown used to the central bank stimulus.
“You have two very troubling things: uncertainty about the Fed policy, combined with concerns about growth, particularly in China,” Eamon Aghdasi, a strategist at Societe Generale in New York, told Bloomberg News.
Wal-Mart became the latest US retailer to slash staff. The company said on Friday it had cut 2,300 jobs at its Sam's Club retail warehouse chain.
US companies including Apple, Amazon, Facebook, Ford Motor, and Pfizer are scheduled to release results in the coming days.
With about a quarter of S&P 500 companies having reported earnings so far, 63.9 percent have surpassed analysts' expectations, according to Reuters.
Some believe the recent slide will prove a reason to buy.
"Ultimately, it's going to be a buying opportunity," Quincy Krosby, market strategist at Prudential Financial in Newark, told Reuters. "The market needs to figure out how much of the move has been liquidity driven and what was based on earnings."
President Barack Obama will deliver his fifth State of the Union address on Tuesday.
This week’s slew of US economic data includes the Dallas Fed manufacturing survey, due Monday; durable goods orders, S&P Case-Shiller home price index, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; gross domestic product, weekly jobless claims, and the pending home sales index, due on Thursday; and personal income and outlays, employment cost index, Chicago PMI, and consumer sentiment, due on Friday.