World Week Ahead: Pullback, what pullback?

World Week Ahead: Pullback, what pullback?

By Timothy Moore

Feb. 14 (BusinessDesk) - It’s hard to buy a stock at a discount these days because the market is proving far too resilient.

This past week the Standard & Poor’s 500 extended its five-month advance, as investors opted to focus on positive corporate results, increasing signs of the U.S. economy’s return to strength and hopes for a calm transfer of power in Egypt.

There’s a renewed openness to risk and that is going to keep money flowing into equities and away from bonds, market watchers say. It’s as if a new definition of risk is being written.

Take gold, for example. A safe haven in times of trouble. You’d had thought it would have run significantly higher because of the turmoil in North Africa and the Middle East. That’s not the case.

"Gold is encountering a lot of resistance on the upside as the U.S. economy is improving, so there are less reasons to hold gold," Miguel Perez-Santalla, vice president of Heraeus Precious Metals Management, told Reuters.

A week doesn’t pass without further signs of momentum building in the world’s biggest economy.

On Friday, consumer sentiment in the U.S. came in at an eight-month high.

“The sharp 0.8% drop in the unemployment rate the past two months is resonating across consumers’ current view and future prospects for the labour market,” the Credit Suisse economists led by Neal Soss wrote in a note to clients.

This week investors will get a fresh raft of data to assess: retail sales, business inventories, housing starts as well as producer and consumer price reports.

“The recovery is becoming more broad-based,” Guy LeBa, chief fixed income strategist at Janney Montgomery Scott, told Bloomberg.

And with that it’s price reports from around the world that are going to start attracting greater attention in the months ahead as the global economy expands and as the outlook for interest rates returns to centre stage.

Of course it’s when the U.S. Federal Reserve will move that will be of greatest interest.

Perhaps shedding some light on what the top officials at the Fed are thinking, four regional presidents will give speeches, starting with Sandra Pianalto on Tuesday.

Late in the week, Fed Chairman Ben Bernanke will appear at a Senate Banking Committee examining finance sector reforms in Washington and then jet to Paris to speak about global imbalances at a Banque de France meeting.

There also will be this week the release of the minutes of the most recent meeting of the Fed’s policy committee, though it’s clear that the central bank will continue to seek to bolster the labour market while trying to encourage inflation to return to the radar screen.

As noted in previous weeks, the U.S. inflation rate is still too low and an increase to a more ‘normal’ range would be another sign of the economy’s rebound - and open the door for the Fed to begin to use interest rates to foster growth in the medium term.

For the moment, though, there’s nothing to stop equities from extending their recent run. The flurry of corporate mergers, including the world’s stock markets, demonstrates that prices are far from peaking.

(BusinessDesk)

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