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World Week Ahead: Eyes squarely on Fed

Monday 18th September 2017

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US Federal Reserve policymakers are in full focus this week as investors keenly await their take on recent data showing signs of an uptick in inflation and the impact on their plans for the pace of interest rate increases.

The Federal Open Market Committee ends its highly-anticipated two-day meeting on Wednesday and is expected to announce it will begin the well-telegraphed unwinding of its balance sheet while keeping its key rate steady. 

Investors will scrutinise the post-meeting statement and new economic forecasts for further clues while Fed Chair Janet Yellen is scheduled to address reporters after the meeting.

On Friday the Fed's John Williams, Esther George and Robert Kaplan are scheduled to speak.

First, this week’s US economic data are due in the form of reports on the housing market index, due today; housing starts as well as import and export prices, due Tuesday; existing home sales, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and PMI composite flash, and Atlanta Fed business expectations, due Friday.

Last week, the Standard & Poor’s 500 Index climbed 1.6 percent, the Dow Jones Industrial Average rallied 2.2 percent, while the Nasdaq Composite Index gained 1.4 percent. 

The Dow closed at a record high on Friday, and so did the S&P 500. 

The latest US data, released on Friday, raised some concern that recent hurricanes, notably Harvey and Irma, also hit the strength of the economy. A Commerce Department report on Friday showed retail sales fell 0.2 percent in August, bucking economists' expectations for a gain, following a 0.3 percent increase in July. Both July and June retail sales were revised lower. 

Meanwhile, a Fed report showed industrial production dropped 0.9 percent in August.

“The early returns from Harvey are trickling in and the news is not good,” Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, told Reuters. “Economists are likely marking down third-quarter growth and marking up the fourth quarter.”

Wall Street’s fear gauge—the CBOE Volatility Index or the VIX—fell 2.6 percent to 10.17 on Friday. 

The mood on Wall Street remains bullish.

“This kind of resiliency has allowed the market to absorb negative headlines time and again,” Frank Cappelleri, senior equity trader at Instinet in New York, told Bloomberg. “While traders may be hesitant to invest fresh capital at price levels that may appear too high, they are forced to anyway. Otherwise, they run the risk of missing out.”

Among the biggest gainers on Friday were technology shares. Shares of Nvidia jumped 6.3 percent after Evercore ISI lifted its price target on the stock.

“People are concerned about missing out as the market continues to rally," Phil Blancato, head of Ladenburg Thalmann Asset Management in New York, told Reuters. "They think maybe they need to finally jump in,”

“The behaviour of the retail investor is more important than ever,” Blancato said. 

In Europe, the Stoxx 600 Index ended Friday with a slide of 0.3 percent from the previous day’s close. 

Bank of England Governor Mark Carney is set to give a speech at an IMF event in Washington today. The BOE’s Monetary Policy Committee last week unexpectedly flagged it might raise interest rates in coming months. 

"We expect the MPC to follow through and deliver a 25-basis-point rate hike in November this year," Capital Economics economist Oliver Jones said in a note. "And our forecast is for rates to rise a further three times next year, as the economy performs better than the MPC’s forecasts currently envisage.”


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