World Week Ahead: Focus on Yellen, Trump

Monday 16th January 2017

Two speeches by Federal Reserve chair Janet Yellen, the inauguration of US President Donald Trump and a slew of corporate earnings including from Morgan Stanley and Citigroup will draw the focus in the coming days.

US financial markets are closed today Martin Luther King Jr Day.

Before the swearing in of Trump on Friday, Yellen is scheduled to speak on Wednesday and again on Thursday and will be closely watched for any hints on the pace of interest rate increases this year.

Last Friday offered fresh evidence of US economic strength with the latest reports showing retail sales and producer prices gained in December.

"This is not the picture of an economy that requires the support of the central bank's policymakers," Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters. "We expect Fed officials to keep with their promise to raise rates two or three times this year."

Other Fed officials set to speak this week include William Dudley, Lael Brainard and John Williams on Tuesday, Neel Kashkari on Wednesday, and Patrick Harker on Friday.

The latest US economic data slated for release this week include the Empire State manufacturing survey, due Tuesday; consumer price index, industrial production, housing market index as well as the Fed's Beige Book, due Wednesday; and housing starts, weekly jobless claims, and the Philadelphia Fed business outlook survey, due Thursday.

Last week, the Dow Jones Industrial Average slid 0.4 percent and the Standard & Poor’s 500 Index slipped 0.1 percent. However, the Nasdaq Composite Index climbed 1 percent to close at a record high on Friday.

Overall, Wall Street languished last week after Trump failed to offer any specifics on his pro-growth agenda.

“Since Trump was elected expectations were set very high,” Andrzej Pioch, a money manager at Legal & General Investment Management in London, told Bloomberg. “Now we need to see some evidence in the hard data to support that. We expect the earnings to be modestly up but a lot of positive news is already priced in.”

Last Friday bank stocks lifted on better-than-expected quarterly earnings from JPMorgan Chase, Bank of America and Wells Fargo.

Banks set to report results this week include Morgan Stanley and Citigroup.

“Results are likely to be good and the outlook is going to be positive so there's room for further gains,” John Praveen, chief investment strategist at Prudential International Investments Advisers in Newark, New Jersey, told Reuters.

A Bloomberg survey showed that fourth-quarter earnings per share for the S&P 500 as a whole are expected to rise 3.7 percent, slightly outpaced by banks, which are expected to post an increase of 3.8 percent.

In Europe, the Stoxx 600 Index advanced 1 percent on Friday, helping it post a 0.1 percent increase for the week. The FTSE 100 edged higher to yet another closing high.

Oil prices will take their cue from indications of compliance from major producers with their agreement to cut output as of the start of the year.

"Compliance won't be 100 percent, it never is," said an OPEC source, who added that an overall rate of 50 to 60 percent would be good enough, based on past compliance levels, Reuters reported.

BusinessDesk.co.nz

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