World Week Ahead: Stimulus bolsters equities

World Week Ahead: Stimulus bolsters equities

By Margreet Dietz

May 11 (BusinessDesk) - Bets that central bankers will continue to keep monetary policy easy, including the latest interest rate cut in China, is likely to help propel global equities still higher this week.

China’s move, which had been anticipated, isn’t expected to be the last time the country’s central bank seeks to stoke growth.

"China's economy is still facing relatively big downward pressure," the People’s Bank of China said. "At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

On a positive note, after some disappointing data, the US government on Friday said American companies hired 223,000 workers in April, meeting expectations and easing concerns about the outlook for the world’s biggest economy. The unemployment rate slipped to 5.4 percent, the lowest since May 2008.

The data suggests that the Federal Reserve may well delay lifting interest rates until later in the year — good news for equities as it bolsters their investment allure. Several Fed policymakers had been making noises about a potential June hike.

"We see this report as reducing concerns that weak first-quarter growth represents a loss of economic momentum," Michael Gapen, chief US economist at Barclays in New York, told Reuters, adding the Fed is unlikely to raise rate before September.

On Friday, the Dow Jones Industrial Average rallied 1.5 percent, the Standard & Poor’s 500 Index climbed 1.4 percent, while the Nasdaq Composite Index advanced 1.2 percent. For the week, the Dow added 0.9 percent, the S&P 500 Index rose 0.4 percent. The Nasdaq slipped 0.04 percent.

“You want an economy growing north of 200,000 jobs, but if you get closer to 300,000 you start to have conversations about inflationary pressures and the economy heating up too fast, so this number is perfect,” Darrell Cronk, president of Wells Fargo Investment Institute in New York, told Bloomberg.

Foreign exchange investors were far less impressed.

“It really hasn’t been the barn burner that the dollar bulls were hoping for,” Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, told Bloomberg. “There is scope for the dollar to remain on the defensive.”

Investors will eye any clues on rates when San Francisco Fed President John Williams talks about the economic outlook, in New York, on Tuesday.

The highlight report this week will be retail sales, given that consumer spending accounts for about 70 percent of economic activity in the US. But of course there will be more data to be parsed: the NFIB small business optimism index, due Tuesday; retail sales, import and export prices, and business inventories, due Wednesday; weekly jobless claims, and the producer price index, due Thursday; and the Empire State manufacturing survey, industrial production, and consumer sentiment, due Friday.

Last week, Europe’s Stoxx 600 Index rose 1.4 percent, bolstered by Friday’s 2.9 percent rally.

For investors, the key focus will be what happens next for Greece. Euro-zone ministers meet in Brussels on Monday in their latest effort to push Athens into a cash-for-reform accord.

On Wednesday, the focus will shift to London where Bank of England Governor Mark Carney will speak on new growth and inflation forecasts for the UK.

Among companies reporting results in the coming days: Cisco, Macy’s, Nissan, Actavis and Singapore Airlines.

(BusinessDesk)

© Scoop Media