World Week Ahead: US earnings, IMF, ECB

Monday 18th July 2016

A wave of US corporate earnings, the International Monetary Fund’s latest world economic outlook, and a European Central Bank policy meeting will draw the focus this week as Wall Street hovers near record highs.

Among the US companies set to release their latest quarterly earnings in the coming days are Bank of America, IBM, Yahoo!, Goldman Sachs, Johnson & Johnson, Intel, Netflix and Microsoft, and their results might offer a further boost to US market sentiment.

“Second-quarter earnings have been widely advertised as weak, so any positive results will help boost the stock market,” Bruce Bittles, chief investment strategist at Milwaukee-based Robert W Baird, told Bloomberg. “We’re seeing a worldwide phenomenon of negative interest rates, which is driving money into the equity markets. The path of least resistance at this point is to the upside.”

Last week, the Dow Jones Industrial Average added 2 percent, the Standard & Poor’s 500 Index climbed 1.5 percent, while the Nasdaq Composite Index also gained 1.5 percent. On Friday, the Dow closed at a record high for a fourth straight day, while the S&P 500 slipped 0.1 percent from Thursday’s record close.

Friday’s reports showing better-than-expected retail sales and industrial production helped underpin confidence that the US economy is in good shape, and might have prompted the Federal Reserve to hike interest rates if it weren’t for overseas factors that are likely to put the brakes on global growth.

“In normal times, this would be enough for the Fed to continue raising interest rates,” Harm Bandholz, chief US economist at UniCredit Research in New York, told Reuters. “But Fed officials want to wait and see if and how Brexit affects the outlook for the US economy before pulling the trigger again.”

This week offers various reports on the US real estate market including the housing market index today, housing starts on Tuesday, and the FHFA house price index as well as existing home sales on Thursday.

Other US data will arrive in the form of reports on weekly jobless claims, the Philadelphia Fed business outlook survey, Chicago Fed national activity index, and leading indicators, due Thursday; and the PMI manufacturing index, due Friday.

On Tuesday, the IMF will release an update to its world economic outlook.

The European Central Bank is scheduled to hold its first monetary policy meeting since the UK’s vote to exit the European Union. While ECB policy makers aren’t expected to add stimulus, investors will scrutinise President Mario Draghi’s comments about the economic outlook at a Thursday press conference following the meeting.

The Bank of England last week, after its first post-Brexit policy meeting, signalled it might cut its key interest rate in August.

Meanwhile, most Britons don’t want a second referendum on UK’s membership in the European Union, a poll by ComRes for the Sunday Mirror and Independent newspapers showed. Fifty-seven percent of those asked didn't support a second referendum on Brexit against 29 percent who did.

Last week Europe’s Stoxx 600 Index posted an advance of 3.2 percent.

“Right now the central banks are in focus again — how they are going to deal with the aftermath of Brexit,” Michael Kapler, an equities manager at Mittelbrandenburgische Sparkasse in Potsdam, Germany, told Bloomberg. “The focus is there — as well as on the earnings season both in Europe and the US.”

The latest European data slated for release this week includes ZEW economic sentiment for both Germany and the euro-zone, due Tuesday; Germany’s producer price index, due Wednesday; and euro-zone manufacturing and services PMIs, due Friday.

BusinessDesk.co.nz

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