World Week Ahead: Watching geopolitics, Fed minutes
By Margreet Dietz
Aug. 14 (BusinessDesk) - As China seeks to defuse increasing tension between the US and North Korea, investors will eye minutes from the latest US Federal Reserve meeting as well as corporate earnings including from Target and Wal-Mart.
Last week, the Dow Jones Industrial Average dropped 1.1 percent, while the Standard & Poor’s 500 Index slid 1.4 percent, and the Nasdaq Composite Index fell 1.5 percent, as US President Donald Trump and North Korea’s Kim Jong Un exchanged a series of inflammatory and threatening comments, prompting concern it might escalate into military conflict.
In a call, Trump and China’s President Xi Jinping agreed that North Korea must stop its provocative behaviour, reiterating their mutual commitment to rid the Korean peninsula of nuclear weapons, according to Bloomberg late on Friday.
Wall Street remains near record highs. Its fear gauge—the CBOE Volatility Index or the VIX—eased on Friday from the highest level in nearly three months, declining 3.3 percent to 15.51.
"If earnings can stay strong and interest rates remain low, investors can look beyond North Korea and continue to rally equities," Robert Phipps, a director at Per Stirling Capital Management in Austin, told Reuters.
Investors will scrutinise minutes from the Fed’s July meeting for fresh clues about the outlook for inflation and the likelihood that the central bank will start unwinding its balance sheet at its September gathering.
Inflation remains subdued. Last Friday, a Labour Department report showed that consumer prices rose a lower-than-expected 0.1 percent in July.
“This is a string of five weak prints in a row—it is not just noise, it’s the trend, and it reflects rotating factors that are pretty broad-based,” Laura Rosner, senior economist and partner at MacroPolicy Perspectives and a former New York Fed analyst, told Bloomberg. “It probably lowers the odds of them hiking later this year after they start to normalise the balance sheet.”
Fed officials slated to speak this week include Robert Kaplan and Neel Kashkari, both on Thursday.
The latest data on the US economy in the coming days will arrive in the form of reports on retail sales, Empire State manufacturing survey, import and export prices, business inventories, and the housing market index, due Tuesday; housing starts, and Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, industrial production, e-commerce retail sales, and leading indicators, due Thursday; and consumer sentiment, due Friday.
"We forecast that retail sales recovered in July," Capital Economics economist Paul Ashworth said in a note. "Core sales probably rebounded too, as income growth has been solid and consumer confidence remains high."
In Europe, the Stoxx 600 shed 1 percent last Friday.
Here, investors will eye Thursday’s release of minutes from the European Central Bank’s latest meeting.
"The ECB minutes are worth noting for any discussion around the language surrounding the asset purchase program—these words were unchanged in the post-meeting statement despite the previous minutes’ noting that members had discussed a change in language," National Australia Bank said in a note.
The region's latest economic data this week include eurozone industrial production, due today; German gross domestic product, due Tuesday; eurozone GDP, due Wednesday; eurozone consumer price index and trade balance, due Thursday; and Germany's producer price index, and eurozone current account, due Friday.