World Week Ahead: Central banks take centre stage

Monday 25th January 2016

After a volatile start to the year, investors will scrutinise a statement from US Federal Reserve policy makers at the end of their two-day meeting on Wednesday for signs of a slower path of interest rate increases this year.

Forecasts released after the Federal Open Market Committee’s December meeting showed policymakers expected four rate hikes in 2016. However, since then oil prices have dropped to 12-year lows, dragging global stock markets and other commodities in their wake.

In addition, China is continuing to struggle to contain its sagging stock market and bolster flagging economic growth.

Central banks elsewhere have responded to the turmoil by offering the promise of additional stimulus. On Friday, Bank of Japan Governor Haruhiko Kuroda said the central bank could increase its quantitative easing program to help stoke inflation. The BoJ meets later this week.

A day earlier European Central Bank President Mario Draghi suggested the ECB was ready to add monetary stimulus at its next policy meeting in March.

“The speculation is the message will continue to be dovish from the Federal Reserve and the four rate increases they have been talking about is not realistic, so that is being viewed as a positive” for stocks, Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York, told Reuters.

A Friday rebound on Wall Street, reflecting a bounce in the price of oil, mitigated the impact of slumping stocks earlier in the holiday-shortened week. The Dow Jones Industrial Average rose 1.3 percent, while the Standard & Poor’s 500 Index climbed 2 percent, and the Nasdaq Composite Index jumped 2.7 percent.

For the four-day week, the S&P 500 closed 1.4 percent higher.

US crude rallied about 9 percent on Friday to close at US$32.19 a barrel. But the outlook remains tepid.

“I don't think we've found a bottom yet,” Fawad Razaqzada, technical analyst for Forex.com and City Index in London, told Reuters. He said he doesn't expect prices to extend their recovery to above US$35 a barrel, the level needed to prevent a further slide.

And the same goes for the S&P 500, some say.

“Are we calling an absolute bottom in oil? No, the same way we’re not calling an absolute bottom in the S&P 500,” Julian Emanuel, the New York-based US equity and derivatives strategist for UBS, told Bloomberg. “A bottoming process is starting. To expect a complete turnaround is probably not correct. It will play out in weeks.”

UBS’s Emanuel, the fourth-most bullish strategist among 19 surveyed by Bloomberg, forecasts a year-end target of 2,275, compared with the median of 2,200. On Friday the S&P 500 closed at 1,906.90.

US earning season is in full swing. Among companies scheduled to release their latest quarterly results this week are Apple, Boeing, Facebook, McDonald’s, 3M and United Technologies.

Of the 73 companies in the S&P 500 that have reported results so far, 78 percent beat earnings projections while 48 percent exceeded sales forecasts, according to Bloomberg.

A bright note on Friday were the latest US housing data, with a National Association of Realtors report showing existing home sales surged a record 14.7 percent last month to an annual rate of 5.46 million units.

“While the carryover of November's delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015,” Lawrence Yun, NAR chief economist, said in a statement.

This week offers more US housing data, with the FHFA and S&P Case-Shiller house price indices, both on Tuesday, as well new home sales on Wednesday and the pending home sales index on Thursday.

Other reports scheduled for release include the Dallas Fed manufacturing survey, due today; consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; durable goods orders, weekly jobless claims, and the Kansas City Fed manufacturing index, due Thursday; gross domestic product, employment cost index, Chicago PMI, and consumer sentiment, due Friday.

In Europe, the Stoxx 600 Index ended Friday’s session with a gain of 3 percent from the previous close, helping it to post an advance of 2.6 percent for the week.

BusinessDesk.co.nz

Comments from our readers

No comments yet