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World Week Ahead: Fed set to move

Monday 11th December 2017

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Federal Reserve policymakers are widely expected to raise their target interest rate increase at this week’s meeting and investors will scrutinise any changes to their outlook for further hikes next year. 

The Federal Open Market Committee is scheduled to end its two-day meeting on Wednesday, which will be followed by a statement and forecasts, as well as a press conference by chair Janet Yellen. 

Underpinning already-firm bets the Fed will lift rates were the latest US jobs data. Last Friday a Labor Department report showed nonfarm payrolls increased by 228,000 jobs in November, beating economists’ expectations, while average hourly earnings rose 0.2 percent last month, following a 0.1 percent decline in September.

“The headline number was a very strong number,” Eric Stein, the co-director of global income and a portfolio manager at Eaton Vance in Boston, told Bloomberg. “The one negative was on the wage side. It literally changes nothing for [this] week—they’re going to hike.”

On Friday, the Dow Jones Industrial Average rose 0.5 percent, the Standard & Poor’s 500 Index climbed 0.6 percent, while the Nasdaq Composite Index added 0.4 percent.

Shares of Foot Locker rallied 4.1 percent on Friday after the New York-based specialty athletic retailer reported quarterly results that exceeded forecasts and offered an upbeat outlook. 

“Despite the highly promotional environment we still see in the marketplace, the availability of premium product is gradually improving compared to the first half of the year, and we believe we can achieve, and perhaps modestly exceed, the top- and bottom-line guidance we gave for the fourth quarter back in August,” Foot Locker chief executive officer Richard Johnson said in a statement. 

For the week, the Dow gained 0.4 percent, and the S&P 500 climbed 1.5 percent. However, the Nasdaq slipped 0.1 percent.

The US economic stats due this week include reports on JOLTS, or Job Openings and Labour Turnover Survey, due today; NFIB small business optimism index, and producer price index, due Tuesday; consumer price index, due Wednesday; weekly jobless claims, retail sales, import and export prices, and business inventories, due Thursday; Empire State manufacturing survey, industrial production, and Atlanta Fed business inflation expectations, due Friday. 

“November’s inflation data ... should confirm that price pressures are rebounding," Capital Economics economist Michael Pearce said in a note. "Meanwhile, the retail sales and industrial production figures for November should provide more evidence that economic activity continued to expand at a solid, if unspectacular, pace in the fourth quarter.”

Investors remain keenly focused on the Trump administration's tax reform negotiations, especially as toward the end of the year they typically reposition their portfolios with the purpose of reducing capital gains taxes. 

"There are a lot of people waiting on tax reform to make those decisions," Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York, told Reuters.

In Europe, the Stoxx 600 Index ended Friday with a 0.7 percent gain from the previous day’s close. 

European Central Bank policymakers gather for a policy meeting on Thursday, as do their colleagues of the Bank of England. Both central banks are expected to hold their respective rates steady. 

Key reports for the region slated for release this week include eurozone ZEW economic sentiment, due Tuesday; Germany’s consumer price index, as well as eurozone industrial production and employment, due Wednesday; eurozone manufacturing and services, due Thursday; and eurozone trade balance, due Friday. 


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