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World Week Ahead US housing, earnings, FOMC minutes

Monday 20th August 2012

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Data on the US housing market and notes from the latest meeting of US central bank policy makers might help support the upward trend on Wall Street, especially if American corporate earnings due this week, including from Dell, continue to beat expectations.

US companies reporting results in the coming days include Lowe's, on Monday, Dell and Best Buy on Tuesday, followed by Hewlett Packard on Wednesday. So far the majority has managed to surpass the lowered expectations for this quarterly earnings season, helping keep alive optimism that corporate America is weathering the storm of slowing growth, or even contraction, at home and abroad.

The Standard & Poor's 500 Index, closing at 1,418.16 on Friday, is now within striking distance of a four-year high as stocks keep inching forward. In the past five days, the Dow Jones Industrial Average rose 0.5 percent, the S&P 500 gained 0.9 percent and the Nasdaq Composite Index gained 1.8 percent.

Meanwhile, US Treasuries have lost some of their appeal. Last week the yield on the 10-year note climbed 15 basis points to 1.8 percent.

"In this period of relative summer calm, risk assets continue to be well-supported as the market appears to enjoy the 'thrill of the chase' in the expectation of additional central bank easing," Ian Stealey, portfolio manager in the International Fixed Income Group at JP Morgan Asset Management, told Reuters.

While investors are starting to look toward the Fed's summit in Jackson Hole, Wyoming, at the end of August, they will first scrutinise the minutes of the latest FOMC meeting, due on Wednesday.

"The minutes are useful because they reveal some of the granularity of the discussions," Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York, told Reuters.

Still, he's not expecting any miracles. "If the Fed had some sort of magic elixir to fix our economy woes, you would have already seen it."

While the most recent data on the world's largest economy maintain the mixed picture, there is clearly a cautious trend towards positive surprises. Among them, last week's reports on the housing market.

A slew of data this week might sustain evidence of a slow but sure recovery in this part of the economy that has been among its most lacklustre.

On Wednesday, data by the National Association of Realtors is expected to show that existing house purchases climbed 3.3 percent to a 4.52 million annual rate last month, following a 4.37 million pace in June, according to the Bloomberg survey median.

Commerce Department data, due Thursday, will probably show that sales of new homes rose to a 365,000 annual rate in July from 350,000 the prior month, according to the survey median.

"Things seem to be looking a bit better compared to the weak second quarter," Omair Sharif, a US economist at RBS Securities in Stamford, Connecticut told Bloomberg. "All the data point to a sustained improvement in housing."

Also due on Friday is the latest report on durable goods orders.

Meanwhile, it remains a struggle to decipher the clues on Europe's plans for decisively tackling the region's sovereign debt crisis though increasingly the camps seem to be converging towards a greater hand in steering national economies. However, Germany is always eager to remind those needing handouts that the international financial assistance pockets aren't bottomless.

On the weekend, German Finance Minister Wolfgang Schaeuble ruled out another aid program for Greece even though the country is in a "very difficult situation" with a shrinking economy.

"It can't be helped - we can't make yet another new program," Schaeuble said at his ministry's open day in Berlin. "There are limits."

The European Central Bank is considering setting limits on yields of euro zone sovereign debt by pledging unlimited bond purchases, Germany's Der Spiegel reported without citing its sources.

The policy will be decided at the September meeting of the ECB's governing council, Der Spiegel said. An ECB official declined to comment on the article, according to Bloomberg.

Europe's Stoxx 600 Index gained 1.1 percent in the past five days.

The days ahead will offer as revised figures for second-quarter UK gross domestic product as well as manufacturing and services reports on Germany and France. Germany is set to auction two-year bonds.

BusinessDesk.co.nz

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