World Week Ahead: Fed gathers as Trump picks successor

Monday 30th October 2017

With Wall Street at record highs, investors will eye US President Donald Trump’s pick for the next Federal Reserve chair, a meeting of the Fed, and the latest US jobs data amid a slew of corporate earnings reports including from Apple and Facebook.

On Friday, the Dow Jones Industrial Average, the Standard & Poor’s 500 Index and the Nasdaq Composite Index closed at record highs, gaining 0.2 percent, 0.8 percent and 2.2 percent respectively on the day.

A Commerce Department report on Friday showing the US economy expanded at a stronger-than-expected 3 percent annual pace in the third quarter bolstered optimism about the outlook for corporate profits.

“The GDP number is pretty much kind of a continuing series of upside surprises in the global economy,” Krishna Memani, chief investment officer at OppenheimerFunds, told Bloomberg. “Growth has been significantly better, perhaps better than what most of us had expected, and it continues to surprise on the upside. That’s not just in the US.”

Meanwhile, the latest earnings and outlooks released late last week such as from Amazon, Alphabet, Microsoft and Intel sparked rallies in their shares on Friday. Amazon soared 13.2 percent, Alphabet climbed 4.3 percent, while Microsoft jumped 6.4 percent and Intel surged 7.4 percent.

For the week, the Dow added 0.5 percent, the S&P 500 rose 0.2 percent, while the Nasdaq advanced 1.1 percent.

The Federal Open Market Committee, which begins its two-day policy meeting on Tuesday, is widely expected to hold off raising its target interest rate until its December meeting. However, investors will scrutinise comments on inflation and clues about the outlook for the pace of future rate hikes.

Among a flurry of US economic data slated for release in the coming days are reports on the employment cost index on Tuesday, the ADP employment report on Wednesday, weekly jobless claims on Thursday, and the government's nonfarm payrolls on Friday.

Meanwhile, Trump might announce his choice to succeed Fed Chair Janet Yellen, whose term ends in February, any day. Fed Governor Jerome Powell appears to be the frontrunner, according to media reports.

A potential Powell nomination brings “more of a relief that, although the Fed may tighten, they’re not really taking on a hawkish stance,” David James, who helps oversee US$6 billion at James Investment Research in Xenia, Ohio, told Bloomberg.

Investors will also closely eye the progress on the Trump administration’s tax reform proposal, with further details set to be unveiled this week.

“The nature of the rally over the last two months has been tax-cut led”, Edward Perkin, chief equity investment officer at Eaton Vance, told Reuters. “If we don’t get a cut then the market is going down” several percentage points.

In Europe, the Stoxx 600 Index finished Friday with a 0.6 increase from the previous day’s close.

On Thursday the Bank of England is widely expected to announce an increase in interest rates.

“We expect that a narrow majority of the committee will vote to raise [the] bank rate from 0.25 percent to 0.50 percent, marking the first rate hike in a decade," Finn McLaughlin, assistant economist at Capital Economics, wrote in a note.

(BusinessDesk)

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