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World Week Ahead: Eyes on Fed minutes, US inflation

Monday 9th October 2017

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US inflation and retail sales data, the latest round of quarterly corporate earnings, and renewed tension between the US and North Korea will form a key focus as Wall Street begins the week near record highs. 

Last Friday’s nonfarm payrolls data bolstered expectations the Federal Reserve will tighten monetary policy again this year, with bets firming for a December move.

Minutes from last month’s Federal Open Market Committee meeting are slated for release on Wednesday, which might offer fresh clues about officials’ take on the outlook for inflation and interest rates.

“The minutes from the Fed’s September meeting will shed more light on the debate over the weakness of core inflation although, given that 12 out of 16 officials still expect to hike rates again before year-end, most clearly view that weakness as transitory,” Capital Economics economist Andrew Hunter said in a note.

The latest US economic data due in the coming days include the NFIB small business optimism index on Tuesday, JOLTS on Wednesday, weekly jobless claims and producer price index on Thursday, as well as consumer price index, retail sales, business inventories and consumer sentiment on Friday. 

Fed officials’ “convictions should be strengthened by September’s CPI release,” Hunter noted. “Otherwise, retail sales will probably have received a big boost from the hurricane-related surge in auto sales last month, while the University of Michigan survey should show consumer confidence remaining close to its recent highs.”

New York Fed President William Dudley on Friday said he expects “inflation will rise and stabilise around the FOMC’s 2 percent objective over the medium term.” 

"Thus, even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually,” Dudley said in prepared remarks for a speech in New York.

Dallas Fed President Robert Kaplan called for patience on rate hikes. “I’m open-minded about December, but I’m not there yet,” Kaplan told CNBC on Friday. 

Several Fed officials are set to speak in the coming days including Neel Kashkari and Kaplan on Tuesday, Charles Evans on Wednesday, Jerome Powell and Raphael Bostic on Thursday, as well as Eric Rosengren, Evans, Kaplan and Powell, on Friday.

Also closely in focus is the question of who will succeed Fed Chair Janet Yellen when her term ends in February, with President Donald Trump signalling he’ll announce his decision as early as mid-October. 

Also this week, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo are among US companies set to report their latest quarterly earnings.

The US financial sector overall is expected to see an earnings contraction of nearly 6 percent for the third quarter, according to CNBC. 

Geopolitical tensions are also back in focus amid Friday's reports that North Korea was preparing to test a long-range missile that could reach the West Coast of the US.

“The market is getting more nervous about the prospect of some kind of a conflict,” Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, told Reuters.

Both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index closed lower on Friday, while US Treasuries and gold rose. 

“People are taking their money off the table. It’s common to see traders flatten out their positions,” Tom Mangan, senior vice president of James Investment Research in Xenia, Ohio, told Bloomberg. “The economy is doing fine, and the only real concern that we see are exogenous things like North Korea, or a major mistake in trade policy.”

To be sure, the Nasdaq Composite Index closed at a record high on Friday.

For the week, the Dow rallied 1.7 percent, the S&P 500 climbed 1.2 percent, while the Nasdaq gained 1.5 percent. 

In Europe, the Stoxx 600 Index ended Friday with a 0.4 percent decline from the previous day’s close.



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