World Week Ahead: US earnings, Fed minutes
By Margreet Dietz
July 7 (BusinessDesk) - US Federal Reserve meeting minutes, Fed officials’ comments and the start of second-quarter earnings season will vie for the attention of investors in the coming days, as Wall Street looks to extend its record run.
Stronger-than-expected June jobs data, released last Thursday, underpinned the view that the world’s largest economy is in much better shape than some had feared after data showing it had contracted 2.9 percent in the first quarter. American employers added 288,000 jobs last month, while the jobless rate fell to 6.1 percent.
Last week, the Dow Jones Industrial Average climbed 1.3 percent, as did the Standard & Poor’s 500 Index, while the Nasdaq Composite index jumped 2.4 percent. On Thursday, the Dow rose through 17,000 points for the first time too. US markets were closed on Friday for the July 4th Independence Day holiday.
So far this year, the Dow has gained 4.2 percent while the S&P 500 has added 8.5 percent. Both ended Thursday at record closing highs. The Nasdaq has risen 8.1 percent in 2014.
The better-than-expected labour data bolstered optimism for corporate earnings. Alcoa unofficially kicks off the second-quarter earnings season on Tuesday after the close of the market. Analysts polled by Reuters are calling for earnings growth for the second quarter of 6.2 percent, and a return to double digits in the third and fourth quarters: 10.9 percent and 11.9 percent, respectively.
“The strong jobs report can translate to better earnings after a period of time but it can't be immediate," Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York, told Reuters.
Even so, the flipside of the coin is that accelerating growth might prompt policy makers to start raising interest rates.
Investors will eye minutes from last month’s Federal Open Market Committee meeting, due for release on Wednesday. In June, policy makers cut bond purchases by US$10 billion for the fifth straight meeting, to US$35 billion a month, while Fed Chair Janet Yellen said the central bank still planned to keep the benchmark interest rate near zero for a “considerable time” after ending the bond-buying programme.
"The data supports expectations for the Fed to begin coaxing the Fed funds rate higher by the middle of next year," analysts at BNP Paribas wrote in a note to clients, according to Reuters. "Markets are now on alert for any change of message from the Fed in response to the better data."
Several Fed officials are scheduled to speak this week. Richmond Fed President Jeffrey Lacker will talk on the economic outlook in Charlotte, North Carolina, while Minneapolis Fed President Narayana Kocherlakota speaks on monetary policy and the economy in Minneapolis, both on Tuesday.
On Thursday, Kansas City Fed President Esther George will discuss the economy and monetary policy in Shawnee, Oklahoma, while Fed Vice Chair Stanley Fischer will speak in Cambridge, Massachusetts. On Friday, Philadelphia Fed President Charles Plosser, Chicago Fed President Charles Evans and Atlanta Fed President Dennis Lockhart will talk at the Rocky Mountain Economic Summit in Jackson Hole, Wyoming.
In terms of economic data this week, reports scheduled for release in the US include the NFIB small business optimism index, and consumer credit, due Tuesday; as well as weekly jobless claims, and wholesale trade, due Thursday
In Europe, the Stoxx 600 gained 1.8 percent last week.
The Bank of England is expected to keep its key interest rate at a record-low 0.5 percent after its meeting on Thursday. Last month, BOE Governor Mark Carney warned an increase could come earlier than markets anticipated.
Among reports due this week in Europe are German industrial production and euro-zone Sentix investor confidence, on Monday; Germany’s trade balance, the UK’s industrial and manufacturing production, on Tuesday; and Germany’s CPI, on Friday.