World Week Ahead: Will the ECB move?

Monday 19th January 2015

Investors will eye the latest US corporate earnings including those from Morgan Stanley and IBM, while European central bankers meet this week amid increased expectations they will announce a sovereign debt purchase programme on Thursday.

Today, US markets are closed for the Martin Luther King Jr holiday.

Last week, the Dow Jones Industrial Average shed 1.3 percent, the Standard & Poor’s 500 Index fell 1.2 percent, and the Nasdaq Composite Index slid 1.5 percent as volatility surged and markets swung, taking their cue from the commodities and currency markets.

The downward trend on Wall Street was muted on Friday after a report by the University of Michigan showed consumer sentiment was the highest in eleven years, underpinning optimism about the US economic outlook in contrast with concern about other regions, in particular China and the Eurozone. The greenback climbed to an 11 year high against the euro on Friday.

"That Michigan number was significant," John Kilduff, a partner at Again Capital, told Reuters. It's a "pretty good harbinger for the economy going forward."

Of the 40 S&P 500 companies that had reported through Friday morning, 55 percent exceeded analyst revenue expectations and 77.5 percent surpassed earnings expectations, according to Thomson Reuters data, though estimates had been slashed in recent weeks.

Johnson & Johnson, Netflix, American Express, General Electric, and McDonalds are also scheduled to report quarterly results in the coming days.

In addition to more results, the latest key data on the US housing market will be released this week, with the housing market index due on Tuesday, followed by housing starts on Wednesday, the FHFA house price index on Thursday, and existing home sales on Friday.

Other scheduled data include weekly jobless claims, a preliminary reading of PMI manufacturing index, due Thursday, and leading indicators on Friday.

On Tuesday, Federal Reserve Governor Jerome Powell and UK Financial Conduct Authority Chief Martin Wheatley will discuss financial market conduct and structure, in Washington.

In Europe, the Stoxx 600 Index gained 2.6 percent for the week after the Swiss National Bank’s shock decision to abandon a cap on the Swiss franc against the euro cemented bets that the European Central Bank will announce a quantitative easing program after its policy meeting this Thursday.

Swiss stocks suffered, with the benchmark Swiss Market Index shedding 8 percent on Thursday and another 6 percent on Friday.

The franc soared 21 percent to 99.41 centimes per euro last week in New York. Yields on Switzerland’s 10 year bonds slid to a record minus 0.034 percent on Friday.

“This is a way for the SNB to regain some control over its exchange rate and its monetary policies, which it had lost with its peg to the euro,” Anne Van Praagh, managing director of Moody’s Investors Service, told Bloomberg News.

But the central bank’s move hit hard for some.

Several foreign exchange brokers waved white flags of surrender on Friday and Citigroup reportedly recorded US$150 million losses on the Swiss decision. On the weekend, Bloomberg News reported another casualty: Marko Dimitrijevic’s largest hedge fund.

And euro challenges haven’t been cleared yet. Greeks head to the polls on January 25 with a leftist, anti-bailout party still in the lead, potentially triggering Greece’s exit from the single currency.

Beyond Europe, the focus more immediately is Asia. China's economy may grow as much as 7.3 percent this year, partly due to falling commodity prices, the official Xinhua news agency reported, citing an academic advisor to the central bank's monetary policy committee.

On Tuesday, the country’s fourth quarter GDP data is scheduled for release. New Zealand and Australian dollar traders will be on edge.

As for commodities, last week’s recovery in the price of oil, after seven straight weeks of losses, hasn’t checked bets that the rout is over as global supplies continue to rise as global demand continues to falter.

"How low the market's floor will be is anybody's guess,” according to the International Energy Agency in its monthly report on Friday. To be sure, “a price recovery, barring any major disruption, may not be imminent, but signs are mounting that the tide will turn.”

BusinessDesk.co.nz

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