World Week Ahead: Bulls bounce back

Monday 20th October 2014

A slew of US corporate earnings and Chinese economic data will form the key focus in the coming days as Friday’s rebound could not prevent Wall Street from sliding for a fourth consecutive week amid concern about global growth.

Among US companies reporting quarterly results in the coming days are Apple, IBM, Boeing, McDonald's, Coca-Cola, Amazon, and Caterpillar.

Friday’s jump in equities on both sides of the Atlantic amid better-than-expected results such as from Morgan Stanley and General Electric and a surprise jump in US consumer confidence stemmed the recent slide and offered optimism.

“The disconnect between the sharp market drops [last] week and the pretty good US fundamentals might’ve gotten some people interested in buying again,” John Canally, an economic strategist at LPL Financial in Boston, told Bloomberg News.

Friday’s rally limited losses for the week: the Dow Jones Industrial Average slid 1 percent, as did the Standard & Poor’s 500 Index, while the Nasdaq Composite Index fell 0.4 percent.

"I would think the market is going to be strong into the close this year,” Michael Mullaney, chief investment officer at Fiduciary Trust in Boston, told Reuters.

Today, investors will eye Federal Reserve officials for comments about the scheduled end of the central bank’s bond-buying program this month as well as the timing of an interest rate increase.

Fed Governor Jerome Powell speaks on a St Louis Fed conference call and webinar, while Fed Governor Daniel Tarullo will talk at a New York Fed conference.

The latest economic reports scheduled for release in the coming days include existing home sales, due Tuesday; the consumer price index, set for Wednesday; weekly jobless claims, the Chicago Fed national activity index, the FHFA house price index, PMI manufacturing index, leading indicators, and the Kansas City Fed manufacturing index, due Thursday; and new home sales, on Friday.

Reports on the US housing market will be closely watched for signs of a more sustained recovery in the industry. Last week the Standard & Poor’s Supercomposite Homebuilding Index posted its largest weekly gain since January.

Investors will also closely watch key economic data from China with reports on retail sales, GDP and industrial production data due on Tuesday.

In Europe, Friday’s 2.8 percent rally in the Stoxx 600 Index was its first gain in nine sessions and helped limit its loss for the week to 0.9 percent. The FTSE 100 Index’s 1.9 percent jump on Friday helped narrow its decline for the week to 0.5 percent.

On Wednesday, the Bank of England will release minutes from the Monetary Policy Committee’s meeting earlier this month, when it kept its key interest rate at a record-low 0.5 percent.

The latest data will arrive in the form of reports on German producer prices and the euro-zone current account, due today; euro-zone manufacturing and services PMI, euro-zone consumer confidence, UK retail sales, due Thursday; as well as German GfK consumer sentiment, and UK GDP, due Friday.

Oil prices remain a concern. A rebound late last week sparked hope the slide may be over but it was considered far from a safe bet.

“After a violent US$15-a-barrel swing in just two weeks, the market is likely to test lows again before it's clear that a true bottom was hit,"Andy Lebow, senior vice president for energy at Jefferies, told Reuters. "You can't say that the downtrend is definitively over."

Last Thursday, West Texas Intermediate prices dropped below US$80 for the first time since 2012, before recovering.

“You’ve probably seen the worst,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, told Bloomberg News. For WTI, “my hunch is that we will hold the US$80 level. But I won’t be shocked if we do retest it.”

BusinessDesk.co.nz

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