World Week Ahead: US earnings, China bets

Monday 19th October 2015

A flurry of US corporate earnings from Morgan Stanley to Boeing to Amazon.com as well as the latest reports on the country’s real estate market are likely to set the tone in the days ahead.

Today, China is set to release third-quarter GDP data, as well as retail sales, industrial production and fixed-asset investment, which will offer more clues about how fast the world’s second-biggest economy is slowing. The data could tip Chinese authorities to do more to bolster growth—a bet that has helped local shares rebound from their recent swoon.

Wall Street moved higher last week as investors drew heart from better than expected earnings such as those from General Electric. Still, the bar is relatively low; earnings at Standard & Poor’s 500 Index members are expected to have slid 6.7 percent in the last quarter, according to Bloomberg.

In the coming days investors will eye results from companies including Morgan Stanley, IBM, Yahoo, Boeing, General Motors, Caterpillar, McDonald’s and Amazon.com.

Last week, the Dow Jones Industrial Average rose 0.8 percent, while the Standard & Poor’s 500 Index gained 0.9 percent, and the Nasdaq Composite climbed 1.2 percent.

"Right now, the trade is a risk relief rally, people buying back the risk they sold earlier in the month," Paul Zemsky, chief investment officer, multi-asset strategies and solutions at Voya Investment Management in New York, told Reuters.

Also in focus are reports on the US real estate market. The housing market index is due today, followed by housing starts on Tuesday, and existing home sales as well as FHFA house price index on Thursday.

Expectations for a US interest rate increase this year have dropped in recent weeks amid disappointing reports on manufacturing weighing on upbeat reports from the jobs market and the US consumer.

“We’ve seen a general strengthening on the consumer side but businesses still are being very cautious and defensive,” Alan Gayle, a senior strategist for Atlanta based RidgeWorth Investments, told Bloomberg.

Policy makers might offer fresh clues on the potential timing of a rate lift with Richmond Fed President Jeffrey Lacker, who is set to speak today; New York Fed chief William Dudley and Fed Governor Jerome Powell are scheduled to hold talks on Tuesday, while former Fed boss Ben Bernanke will speak on Wednesday.

“You may have no rate hike this year from the Federal Reserve and an extension of stimulus in Europe and in Japan so that’s giving a boost to equities,” John Plassard, a senior-equity sales trader at Mirabaud Securities in Geneva, told Bloomberg. “At the same time, crude rebounded, and earnings in the US and Europe were not so bad.”

Other US data due this week include weekly jobless claims, Chicago Fed national activity index, leading indicators, and Kansas City Fed manufacturing index on Thursday, as well as PMI manufacturing on Friday.

On Thursday, European Central Bank policy makers gather amid increased speculation they are gearing up to add monetary stimulus, possibly by extending the current monthly bond buys for a longer time. President Mario Draghi will hold a press conference after the meeting.

"In the near term, the dollar could gain further against the euro as there's more speculation about more (quantitative easing) from the ECB," Lee Ferridge, State Street Global Markets' head of macro strategy, North America, in Boston, told Reuters.

In Europe, Friday’s gains, 0.6 percent on the day, helped the Stoxx 600 Index post a 0.1 percent increase last week.

BusinessDesk.co.nz

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