World Week Ahead: Fed minutes, Home Depot results

Monday 16th May 2016

Investors will eye the minutes of the latest Federal Reserve meeting, scheduled for release on Wednesday, amid increasingly mixed messages about global economic growth.

On Saturday reports out of China offered fresh fuel for doubts about that nation’s economy, showing that investment, factory output and retail sales expanded at a more tepid pace than expected.

“It appears that all the engines suddenly lost momentum, and (the) growth outlook has turned soft as well," Zhou Hao, economist at Commerzbank in Singapore, said in a research note, according to Reuters. “At the end of the day, we have (to) acknowledge that China is still struggling."

China's banking regulator has sent an urgent notice to banks telling them to clear bottlenecks slowing lending to private firms, Reuters reported, citing sources with direct knowledge, a signal of Beijing’s heightened concern about private investment.

Meanwhile, the US consumer seems to be gathering steam. After a slew of disappointing results from US retailers including Macy’s, Nordstrom and JC Penney last week, a Commerce Department report on Friday showed US retail sales posted a better-than-expected 1.3 percent advance in April.

The retail sales “report raised some eyebrows given the string of negative commentary from retailers, but that juxtaposition is a useful reminder that publicly traded corporations account for a minority of economic activity in the US,” Michael Feroli, an economist at JPMorgan in New York, told Reuters.

A separate report showed US consumer confidence climbed in May to the highest level in nearly a year.

This week, investors will scrutinise the minutes from the Federal Open Market Committee’s April meeting for clues about the likelihood of an interest rate increase at its June meeting.

The US dollar strengthened on Friday as some bet the Fed might need to be less patient than planned.

"If you keep having more and more positive news, showing the economy’s becoming solid, a Fed hike is going to come back into play,” Fabian Eliasson, head of US corporate foreign-exchange sales in New York at Mizuho Financial Group, told Bloomberg.

Several Fed officials will take the stage in the coming days, including Minneapolis Fed President Neel Kashkari today, San Francisco Fed's John Williams and Dallas Fed's Robert Kaplan on Tuesday, and New York Fed’s William Dudley on Thursday.

Fresh US data this week will arrive in the form of the Empire State manufacturing survey and the housing market index, due today; the consumer price index, housing starts, and industrial production, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, the Philadelphia Fed business outlook survey, and the Chicago Fed business outlook survey, due Thursday; as well as existing home sales, due Friday.

Wall Street posted a decline for the week. Last week the Dow Jones Industrial Average slid 1.2 percent, while the Standard & Poor’s 500 Index retreated 0.5 percent, and the Nasdaq Composite Index fell 0.4 percent.

Some see further weakness ahead.

“Everyone is hoping for the best, and a little bit too much optimism is creating the orderly nature of the selloff. But the bias right now is lower,” Phil Orlando, chief equity-market strategist at Federated Investors in New York, told Bloomberg. “Investors are processing a number of bad data points we’ve seen over the last couple of weeks. Stocks are still ahead of themselves and ought to pull back more.”

Direction will also come from the latest corporate earnings with Home Depot, Cisco, Wal-Mart, Lowe’s and Target scheduled to report in the coming days.

In Europe, the Stoxx 600 Index gained 0.9 percent last week.

BusinessDesk.co.nz

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