World Week Ahead: Fed meets, US GDP rebound awaited

Monday 27th July 2015

After a week of disappointing US corporate earnings and a slide in commodity prices took their toll on Wall Street, investors are eyeing the US Federal Reserve for guidance on the timing of an interest rate hike.

The Federal Open Market Committee’s two day meeting starts July 28. Fed Chair Janet Yellen has repeatedly said she expects the central bank to hike rates this year. Most economists expect the Fed to move in September.

On Wednesday, a Commerce Department report is expected to show the US economy rebounded in the second quarter after contracting in the first three months of the year.

On Wall Street last week, the Dow Jones Industrial Average dropped 2.9 percent, the Standard & Poor’s 500 Index fell 2.2 percent, while the Nasdaq Composite Index slid 2.3 percent.

The latest manufacturing data from China and Europe raised concerns about the global outlook, pushing commodity prices lower. A strong US dollar does not help either. Gold fell to a five year low on Friday, shedding more than 4 percent for the week.

Brent September crude dropped 4.3 percent last week, while US September crude slid 5.5 percent. US Treasuries benefitted, posting a gain for the week.

“We had weak Chinese PMIs (performance of manufacturing indices) and declining PMIs in Europe, soft figures on the corporate front,” Ralf Zimmerman, a strategist at Bankhaus Lampe in Dusseldorf, Germany, told Bloomberg. “We need more positive global news or else the downwards move will persist.”

On Friday, companies including Biogen continued the week’s course of disappointing earnings reports from companies including Apple and Microsoft, and Biogen's downgraded 2015 full year forecast sent the stock 22 percent lower. Amazon and Visa bucked the trend, reporting earnings that boosted their shares.

“The market has been focused front and centre on earnings, and it’s been a mixed bag,” Mike Baele, managing director at Portland, Oregon based at US Bank Private Client Reserve, told Bloomberg. “Rather than an overall, macro stock market, it’s now more company by company.”

US companies releasing their latest earnings in the coming days include Ford Motor, Pfizer, GlaxoSmithKline, WholeFoods, Time Warner Cable, Chevron and ExxonMobil.

Following Friday’s report showing a surprise drop in new home sales, this week’s housing industry data will arrive in the form of the S&P Case-Shiller home price index on Tuesday and the pending home sales index on Wednesday.

Other US economic data to be released include: durable goods orders and the Dallas Fed manufacturing survey, due today; PMI services, consumer confidence, and Richmond Fed manufacturing index, due Tuesday; gross domestic product, and weekly jobless claims, due Thursday; employment cost index, Chicago PMI, and consumer sentiment, due Friday.

In Europe, the Stoxx 600 Index slid 2.7 percent last week.

Today, talks between Greece and its international creditors over a new bailout package should go ahead after logistical issues that delayed meetings last week were resolved, a Greek official told Reuters on Saturday.

The latest reports scheduled for release in the coming days include: the German import price index and German IFO business climate index, due today; UK gross domestic product, due Tuesday; German GfK consumer sentiment, due Wednesday; German unemployment, eurozone economic confidence, and German consumer price index, due Thursday; and German retail sales, eurozone unemployment, and eurozone CPI, due Friday.

BusinessDesk.co.nz

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