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World Week Ahead: Fed meets, eyes on earnings

Monday 24th July 2017

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It’s a big week for corporate earnings on both sides of the Atlantic, while Federal Reserve policy makers also gather for a two-day meeting. 

While the Federal Open Market Committee is not expected to raise its key interest rate, investors will closely eye the post-meeting statement for any fresh assessments on the pace of inflation growth, which is below the central bank’s 2 percent target and has eased recently.

Earlier this month Fed Chair Janet Yellen told Congress that there was “uncertainty about when—and how much—inflation will respond to tightening resource utilisation.” That comment has led traders to rethink whether US rates will rise for a third time this year as previously signalled.

Among the host of US companies reporting their latest quarterly earnings in the coming days are Google parent Alphabet, Facebook, Amazon, Caterpillar, Boeing, Ford and McDonald’s.

So far US earnings have largely surprised to the upside.  

“What's important is the directionality of earnings, and earnings are going up," Jeffrey Saut, chief investment strategist at Raymond James Financial in St Petersburg, Florida, told Reuters. “We've transitioned from an interest rate-driven secular bull market to an earnings-driven secular bull market.”

Last Friday shares of Honeywell rose, closing 1 percent higher, after the company upgraded its profit forecast. 

But there were disappointments too. Shares of General Electric slid on Friday, leading the decline in the Dow Jones Industrial Average, after the company offered an outlook that failed to meet expectations. 

"GE's results were okay but they guided lower,” Erick Ormsby, chief executive of Alcosta Capital Management, told Reuters.

Last week, the Dow Jones Industrial Average fell 0.3 percent. In contrast, the Standard & Poor’s 500 Index gained 0.5 percent and the Nasdaq Composite Index rose 1.2 percent.

Among the slew of US economic data due this week are reports on the PMI composite, and existing home sales, due today; FHFA house price index as well as the S&P Corelogic Case-Shiller home price index, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; new home sales, due Wednesday; durable goods orders, international trade in goods, weekly jobless claims, Chicago Fed national activity index, and the Kansas City Fed manufacturing index, due Thursday; as well as GDP, employment cost index, and consumer sentiment, due Friday. 

In Europe the Stoxx 600 dropped 1 percent last Friday after Der Spiegel magazine reported that German car makers may have colluded for years, potentially violating competition rules. 

The index slid 1.7 percent for the week. 

This week, more than half the companies in the Euro Stoxx 50 Index including Daimler, Deutsche Bank and Banco Santander are scheduled to report their latest earnings, according to Bloomberg.

Oil prices dropped on Friday, pressuring energy shares including Chevron, following reports that OPEC might report its highest production this year in July.

Petro-Logistics, a consultancy tracking OPEC supply forecasts, said the group’s crude production would rise 145,000 barrels per day this month, which would take the group's combined output above 33 million barrels per day, Reuters reported.

Ongoing concern about the global glut hangs over the market. 

“To really see the market push much higher, we need to see a drumbeat that inventory levels are being pared, like the main producers who are cutting production say is happening,” Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut, told Bloomberg. Without that, "further gains are going to be kind of tough to come by.”


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