World Week Ahead: Fed, earnings return

Monday 11 July 2016 08:32 AM

World Week Ahead: Fed, earnings return

By Margreet Dietz

July 11 (BusinessDesk) - Investors will closely listen to a slew of Federal Reserve officials slated to speak this week after last Friday’s better-than-expected US jobs data to gauge the odds of a rate hike, while the Bank of England announces its first policy decision since the Brexit vote.

Last Friday a report showed that US employers added 287,000 workers to their payrolls in June, far exceeding economists’ expectations, after a downwardly revised 11,000 in May.

“Job growth has clearly slowed, that isn’t surprising,” Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, and the best forecaster of US payrolls over the past two years, according to data compiled by Bloomberg. “But that doesn’t mean the economy is in serious jeopardy of falling into a recession.”

Indeed, the jobs data lifted bets that the Fed might still hike its key rate this year, after all.

“There's reason to believe the Fed could start talking about a December rate hike,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin, told Reuters.

Investors will therefore have good reason to pay attention to the host of Fed officials set to speak this week. They include Kansas City Fed President Esther George and Cleveland Fed boss Loretta Mester today, St Louis Fed's James Bullard and Minneapolis Fed's Neel Kashkari on Tuesday, Dallas Fed's Robert Kaplan and Philadelphia Fed's Patrick Harker on Wednesday, and Atlanta Fed's Dennis Lockhart on Thursday.

The Fed will also release its Beige Book on Wednesday.

Other US data due in the coming days include the labour market conditions index, today; NFIB small business optimism index, and wholesale trade, on Tuesday; import and export prices, and Atlanta Fed business inflation expectations, on Wednesday; weekly jobless claims, producer price index, on Thursday; and consumer price index, retail sales, Empire State manufacturing survey, industrial production, business inventories, and consumer sentiment, on Friday.

Friday’s rally helped Wall Street end the four-day week, shortened by the Independence Day holiday, on a positive note. In the past four days, the Dow Jones Industrial Average rose 1.1 percent, the Standard & Poor’s 500 Index climbed 1.3 percent, while the Nasdaq Composite Index added 1.9 percent.

Alcoa kicks off the second-quarter reporting season after the closing bell on Monday. Other big names scheduled this week: JPMorgan, BlackRock, Wells Fargo and Citigroup.

The US jobs data also helped lift the mood in Europe. The Stoxx Europe 600 Index climbed 1.6 percent on Friday. Still, it posted a weekly drop of 1.5 percent.

Banks rebounded, after the Stoxx Europe 600 Banks Index had fallen to 1.4 percent above its 2011 low, according to Bloomberg.

When Bank of England officials gather this Thursday for their first policy meeting since the UK’s surprise vote to exit the European Union last month, they are expected to set the stage for a rate cut in August. BOE Governor Mark Carney has said that some monetary policy easing would likely be required the next few months.

Some economists believe the BOE’s Monetary Policy Committee will already do more on Thursday, lowering the target bank rate to 0.25 percent, from the current 0.50 percent.

"We think the Committee will recognise the dangers of disappointing market expectations and cut bank rate by 0.25 percent, before re-starting its quantitative easing program in August,” Jonathan Loynes, an economist with Capital Economics, told Reuters.

The British pound recorded its third consecutive weekly drop, making it 2016’s worst performer among major currencies, according to Bloomberg.

And there’s more pain ahead for the UK currency, some analysts warn.

“Sterling’s going to fall considerably further as the effects of that uncertainty on investment and growth emerge from the gloom,” Kit Juckes, a macro-strategist at Societe Generale in London, wrote in a note to clients, Bloomberg reported.

First, EU finance ministers will gather today and Tuesday. They will issue a statement at their meeting urging bank regulators to avoid imposing a disproportionate increase of costs on European banks, Reuters reported, citing draft conclusions of the meeting.

(BusinessDesk)

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