Monday 12th May 2014
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A selloff in tech stocks did not stop the Dow Jones Industrial Average from ending last week at a record high and investors will eye earnings from companies including Wal-Mart and speeches from US Federal Reserve Chair Janet Yellen and several of her colleagues for direction in the days ahead.
On Friday the Dow edged higher to a record, bolstered by gains in shares of McDonald's and Home Depot, bringing its increase for the week to 0.43 percent.
However, the Standard & Poor's 500 index lost 0.14 percent last week, while the Nasdaq Composite index dropped 1.26 percent as investors dumped some of the high-flying momentum tech stocks amid concern their earnings outlook do not justify valuations.
"Names that are trading at reasonable valuations with decent fundamentals are where the money is going," Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities, told Bloomberg News.
The coming days will bring the latest earnings from companies including Wal-Mart, Cisco and Deere & Co.
Of the 453 S&P 500 companies that have released results this earnings season, 76 percent have surpassed estimates for profit, while 53 percent have exceeded projections for revenue, data compiled by Bloomberg show.
On Thursday, Federal Reserve Chair Yellen is scheduled to speak at a Small Business Administration event in Washington. In her testimony to Congress last week, Yellen made it clear that while the US economic outlook is improving, risks remain including the housing sector.
First though, Philadelphia Fed President Charles Plosser is set to talk today in Philadelphia. On Tuesday Atlanta Fed Bank President Dennis Lockhart will speak in Riyadh, Saudi Arabia, while Richmond Fed's Jeffrey Lacker is scheduled to deliver welcoming remarks at a credit markets symposium in Charlotte, North Carolina.
On Thursday New York Fed President William Dudley will speak in New York, and on Friday St Louis Fed President James Bullard will talk on the economy and monetary policy in Little Rock, Arkansas.
The latest data scheduled for release this week include the NFIB small business optimism index, retail sales, and business inventories, due Tuesday; Atlanta Fed business inflation expectations and the housing market index, due Wednesday; the consumer price index, weekly jobless claims, the Empire State manufacturing survey, industrial production, and the Philadelphia Fed survey, due Thursday; and housing starts, due Friday.
In Europe, the Stoxx 600 gained 0.2 percent last week, while Germany's DAX rose 0.3 percent, and France's CAC 40 added 0.4 percent. The UK's FTSE 100 slipped 0.1 percent.
Late on Friday, Bloomberg reported there could be a major revamp by Rupert Murdoch's European pay-television holdings with BSkyB in the UK acquiring control of Sky Deutschland and Sky Italia. Bloomberg puts the value of the transaction at 10 billion euros.
On the currency market, the euro dropped last week, weakening 0.8 percent against the greenback, after European Central Bank President Mario Draghi on Thursday flagged a potential interest rate cut next month if needed to combat a strong currency. Some say talk is cheap.
Draghi "has a number of times attempted to talk down the euro, and yet they haven't done much," John Doyle, currency strategist at Tempus in Washington, told Reuters. "The testing of US$1.40 on the euro was right, but until the ECB actually acts, I don't see a sustained rally in the [US] dollar. The market has been calling Draghi's bluff."
In the coming days, investors will eye the ZEW Center's May index of German investor confidence, due Tuesday, and the Bank of England's quarterly Inflation Report, due Wednesday.
On Thursday, a report is expected to show that the euro-zone economy grew 0.3 percent in the first quarter, according to a Bloomberg News survey.
Japan will also release first quarter GDP data on Thursday. Across the Tasman, Tuesday will see the release of the federal budget.
A continuing risk to global markets is what will happen if pro-Moscow separatists proceed with a vote on secession in some parts of eastern Ukraine. It's not that the outcome is in doubt in votes largely seen as unrepresentative but how Vladimir Putin responds.
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