World Week Ahead: Fed minutes, OPEC

Monday 21st November 2016

Investors will dissect minutes from the latest Federal Reserve policy meeting released in a week shortened by the US Thanksgiving holiday.

US financial markets will be closed on Thursday.

The minutes from the Federal Open Market Committee’s November 1-2 policy meeting will be released on Wednesday. Last week Fed Chair Janet Yellen told Congress the central bank might raise interest rates "relatively soon.”

Fed funds futures are showing a 96 percent chance of a US rate hike next month, compared with 80 percent before the US election, according to Bloomberg.

First, Fed Vice Chairman Stanley Fischer might offer fresh clues on the rate outlook as he’s scheduled to speak today.

The latest US economic data will show up in reports on the Chicago Fed national activity index, due today; existing home sales, and the Richmond Fed manufacturing index, due Tuesday; durable goods orders, weekly jobless claims, FHFA house price index, PMI manufacturing index, new home sales, and consumer sentiment, due Wednesday; as well as international trade in goods, and PMI services, due Friday.

Since the US presidential election resulted in a surprise win for Republican candidate Donald Trump, investors have pushed Wall Street to record highs amid bets on his policies such as looser financial regulation and an increase in government spending including on infrastructure.

The US dollar has also strengthened as a result and might continue its run against the euro and the yen.

“US dollar momentum has been strong,” Vassili Serebriakov, a foreign-exchange strategist at Credit Agricole CIB in New York, told Bloomberg. “The move has further to go. We could see some consolidation ahead of the Thanksgiving holidays, but I suspect markets will continue buying into any US dollar pullbacks.”

Last week, the Dow Jones Industrial Average inched 0.1 percent higher, the Standard & Poor’s 500 Index added 0.8 percent as did the Nasdaq Composite Index rose 1.6 percent. The Nasdaq hit an intraday record high on Friday.

Some flag caution.

“The industrial and financial stocks are a little bit ahead of themselves,” Carin Pai, director of equity management at Fiduciary Trust Company International in New York, told Bloomberg. “I would be a little bit cautious on some of the sectors that have really moved in anticipation of growth because the fundamentals need to catch up to that.”

Wall Street closed lower on Friday, as the Dow, the S&P 500, and the Nasdaq all slid 0.2 percent. Both the S&P 500 and the Nasdaq fell from a record-high close on Thursday.

“I see the market kind of churning here because it's had a very decent move,” Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York, told Reuters. “Trump's policies continue to be just rhetoric because none of it has been enacted."

Others are more bullish.

“This is just the last day of a week of consolidation after the recent Trump rally,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg. “We think the positives for the market are intact, we will soon head into a year-end rally.”

Europe’s Stoxx 600 Index shed 0.6 percent on Friday, which lowered its gain for the week to 0.6 percent.

US Treasuries wrapped up another week of declines amid bets Trump will spur inflation. Yields on the benchmark 10-year note surged a whopping 58 basis points over the past two weeks to 2.35 percent, according to Bloomberg.

European Central Bank President Mario Draghi is scheduled to speak to European Parliament today. Last Friday he warned that the euro zone's recovery still depends on accommodative monetary policy.

“We cannot yet drop our guard,” Draghi said in remarks at the European Banking Congress in Frankfurt. “We do not yet see a consistent strengthening of underlying price dynamics.”

"Even if there are many encouraging trends in the euro area economy, the recovery remains highly reliant on a constellation of financing conditions that, in turn, depend on continued monetary support," Draghi noted. “The ECB will continue to act, as warranted, by using all the instruments available" to stimulate inflation.

Also today, investors will watch the outcome of a formal meeting of the Organisation of Petroleum Exporting Countries as the group aims to finalise the details of an agreement to reduce output, first reached in Algiers in September.

BusinessDesk.co.nz

Comments from our readers

No comments yet