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World Week Ahead: Fed on rates, Trump speech, tech earnings all loom

Monday 29th January 2018

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 With Wall Street at record highs, investors will eye a Federal Reserve meeting, US President Donald Trump’s first State of the Union address and the latest corporate results including from Facebook, Microsoft, Amazon, Alphabet and Apple. 

The Federal Open Market Committee will conclude its two-day meeting on Wednesday, the last one with Janet Yellen as the central bank’s chair before Jerome Powell takes over. While the FOMC is not expected to announce a rate hike on Wednesday, it is widely expected to raise its target rate during its March meeting. 

"In our view, investors are still underestimating how much the Fed will raise interest rates given the likelihood of higher core inflation in the US in the coming months," Capital Economics economist Oliver Jones said in a note. "This is the key reason why we think that the 10-year Treasury yield will resume its rise before long.”

First though, on Tuesday, President Trump will probably discuss infrastructure plans, expected to be next on his legislative agenda, as well as immigration and trade, none of which are likely to add fuel to Wall Street’s fire, analysts said.

“Nothing is going to trump tax reform,” Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut, told Reuters. “Since I expect the president to do a victory lap, the typical market reaction would be a sell-the-news reaction in contrast to last year.”

Investors will also eye the latest US jobs data with the ADP employment report and the employment cost index slated for release on Wednesday, followed by weekly jobless claims on Thursday and the government's nonfarm payrolls report on Friday. 

TD Securities said it expects nonfarm payrolls to advance by a "respectable" 175,000 jobs, while it predicts the unemployment rate to slip to 4.0 percent. 

"But markets will likely focus more on average hourly earnings, which we expect to disappoint despite minimum wage hikes and bonus increases," TD Securities said in a note. 

Other US economic data scheduled for release this week include personal income and outlays, and the Dallas Fed manufacturing survey, due today; S&P Corelogic Case-Shiller home price index, and consumer confidence, due Tuesday; Chicago PMI, and pending home sales index, due Wednesday; motor vehicle sales, productivity and costs, PMI and ISM manufacturing indices, as well as construction spending, due Thursday; and consumer sentiment and factory orders, due Friday. 

Last Friday, the Dow Jones Industrial Average rose 0.9 percent, the Standard & Poor’s 500 Index increased 1.2 percent, while the Nasdaq Composite Index advanced 1.3 percent. The three benchmark indexes all closed at record highs. 

Shares of Wal-Mart Stores closed 1.8 percent higher on Friday after it agreed to team up with Tokyo-based Rakuten to sell e-books in the US and launch an online grocery delivery service in Japan, intensifying the battle between the world’s biggest retail chain and Amazon. 

Under the deal, Walmart and Rakuten will offer the new online grocery delivery service in Japan, beginning in the third quarter of 2018, they said in a joint statement.

As part of this alliance, Walmart will also become Rakuten Kobo’s exclusive mass retail partner for the Kobo brand in the US, offering Kobo’s nearly six million titles to customers. In addition, Walmart will sell digital book cards in stores, enabling more than 4,000 stores to carry a broader selection of books, the companies said. 

Shares of Rakuten closed 4.5 percent higher in Tokyo on Friday.

For the week, the Dow rallied 2.1 percent, the S&P 500 gained 2.2 percent, while the Nasdaq climbed 2.3 percent.

In Europe, the Stoxx 600 Index ended Friday with a 0.5 percent advance from the previous day’s close. 

In the UK, Bank of England Governor Mark Carney is scheduled to speak before the Lords’ Economic Affairs Committee on Wednesday.

The US dollar resumed its slide as President Trump’s effort to bolster the currency faded. The dollar index fell to a three-year low, while the euro extended its rally to a more than three-year high.

US Treasuries slide, sending yields on the 10-year note 4 basis points higher to 2.66 percent, according to Bloomberg data. The yield has risen 25 basis points in the last month.


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