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World Week Ahead: Can US data deliver?

Monday 2nd April 2012

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Riding high on a strong quarter, investors will be focusing this week on a flurry of data to see whether the strength of the global economy, in particular the US, warrants further gains on Wall Street and European bourses.

Reports on American manufacturing and services, construction spending, factory orders and several updates on the job market will be scrutinised for confirmation that the recovery remains on a track, justifying what has been a superb quarter for equities.

In the first three months of the year the Dow Jones Industrial Average and the Standard & Poor's 500 Index both posted the best first quarter since 1998. The Nasdaq Composite Index had its best one since 1991.

The S&P 500 ended the first quarter 3.4 percent above the 1,362 mean year-end projection of strategists surveyed by Bloomberg. The advances though have prompted concern among some.

“The best of 2012 is probably behind us,” Alan Brown, chief investment officer at Schroders, told Bloomberg. “We’ve had a very substantial rally. I’m not sure where the fresh round of good news comes from that we haven’t already discounted in today’s prices. I’m rather more cautious at the present time.”

It's a short week, with financial markets on both sides of the Atlantic closed on Friday for Easter. For investors in many markets it will be a four-day weekend with Monday off too, except in the US.

Despite the pause for Good Friday, the latest US jobs data will be released that day and it is expected to show that American employers added 201,000 jobs in March, compared with 227,000 in February. The unemployment rate is expected to hold steady at 8.3 percent, according to economists polled by Reuters.

"People are looking for a little more out of the data, but it ultimately depends on how the numbers come in relative to expectations—it's all about beating or missing expectations," Joseph Tanious, market strategist at JP Morgan Funds in New York, told Reuters. "That will likely dictate the market the following Monday after Good Friday."

Several central banks will offer views on the outlook in the next few days. First out the door will be the Reserve Bank of Australia, then the minutes from the most recent Federal Open Market Committee meeting will be released and finally, the European Central Bank is expected to keep its interest rate steady after its policy makers meet.

Europe has drawn strength from the US economy, helping the Stoxx 600 Index post its best first quarter since 2006 with a 7.7 percent gain. Around Europe on Friday, the UK's FTSE 100 index was up 0.5 percent, France's CAC 40 up 1.3 percent and Germany's DAX index up 1 percent, enjoying its strongest first-quarter performance since 1998.

A renewed resolve to combat the European Union's sovereign debt crisis has helped restore confidence. On Friday, euro-zone finance ministers agreed to temporarily shore up the euro zone's rescue fund to about 800 billion euros. And Spain's government unveiled a tougher than expected austerity budget to rein in spending and its deficit.

Commodities had a decent quarter, though gains were curtailed by signs that China's economic strength is wavering. Oil rose again for the quarter, up just over 4 percent after a gain of 25 percent in the last quarter of 2011, according to Bloomberg.

A Reuters survey showed OPEC oil output rising in March to its highest level since October 2008 as higher Iraqi and Libyan output offset less production in Iran.

Meanwhile, copper traders are the most bearish in two months after stockpiles tracked by the biggest metals bourse rose for the first time in five weeks and Goldman Sachs Group cut its recommendation on commodities to neutral. Eleven of 25 analysts surveyed by Bloomberg expect copper to drop next week, while seven were neutral.

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