World Week Ahead: Bank earnings, Fed talks

Monday 12th October 2015

US corporate earnings including those from JPMorgan Chase and Citigroup will be in focus in the coming days as well as remarks from a slew of Federal Reserve officials as investors continue to seek guidance on when US rates will start to rise.

Other major banks reporting their latest results in the coming days include Bank of America, Goldman Sachs and Wells Fargo. General Electric, BlackRock, Intel and Netflix are also set to release their earnings this week.

"Focus will be on earnings as the market will get more information about how much the emerging market slowdown has damaged earnings and how much bad news has been priced in,” Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, told Reuters.

Last Friday, shares of Alcoa dropped 6.8 percent after it reported earnings that fell short of analysts’ expectations.

When it comes to bank stocks, ”participants are bracing for a bit more volatility than in past quarters," Fred Ruffy, strategist at options analytics firm Trade Alert in New York, told Reuters.

Since the Fed held off on a rate increase at its September meeting, investors have begun betting the central bank may delay raising its benchmark rate until 2016.

"The jury is still out whether the Fed will hike rates in December or early 2016, but this seems to be enough to lift global stocks after a horrible third quarter," Gijsels noted.

The Fed’s apparent reluctance to lift rates however is a negative for the greenback, which slid for the week while commodity-linked currencies including the New Zealand dollar recouped some of their recent losses.

“The near-term prognosis for the (US) dollar is challenging,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking in New York, told Bloomberg. The latest futures data shows that bullish bets on the greenback have dropped.

US policy makers, including Fed Vice Chair Stanley Fischer on Friday and again on Sunday, are reminding markets that the first rate increase since 2006 may still happen this calendar year.

A Fed rate increase this year is “an expectation, not a commitment” Fischer told a group on the sidelines of the International Monetary Fund meeting in Peru, Reuters reported on Sunday.

“Both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy,” Fischer said.

Eyes will also be on China which releases reports on exports and imports, consumer price index, and producer price index in the coming days. The country’s surprise yuan devaluation, in August, was the trigger for much of the recent concern about the global economy.

In the US, key economic reports due in this week include retail sales and the Beige Book on Wednesday, the consumer price index on Thursday, and consumer sentiment on Friday.

Among Fed officials speaking this week are Atlanta Fed President Dennis Lockhart, Chicago Fed boss Charles Evans and Fed Governor Lael Brainard, today, followed by St Louis Fed chief James Bullard, on Tuesday and again on Thursday, the New York Fed’s William Dudley and the Cleveland Fed’s Loretta Mester, both also on Thursday.

Last week, the Dow Jones Industrial Average jumped 3.7 percent, while the Standard & Poor’s 500 Index rallied 3.3 percent, and the Nasdaq Composite climbed 2.6 percent.

Today, US bond markets are closed for the Columbus Day holiday. Stock markets are open.

In Europe, the Stoxx 600 Index rallied 4.3 percent last week.

Here, investors will eye data on Germany’s consumer price index, as well as euro-zone and German ZEW economic sentiment, due Tuesday; euro-zone industrial production, due Wednesday; and euro-zone trade balance as well as CPI, due Friday.

BusinessDesk.co.nz

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