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World Week Ahead: Fed inflation check, earnings from Apple

Monday 30th April 2018

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Federal Reserve policymakers are set to gather at a time of rising US Treasury yields and an easing in the pace of economic growth, while Apple, McDonald’s and Ford are among a flurry of companies set to report their latest quarterly earnings. 


The Federal Open Market Committee is not expected to announce an interest rate increase at the conclusion of its two-day meeting on Wednesday, though it might flag a steeper pace of rate hikes ahead.


“Officials could signal a faster pace of tightening to come, particularly if data released [today] show core PCE inflation hitting the 2 percent target in March,” according to Capital Economics in a note on Friday. 


Without a post-meeting press conference or update in forecasts, all eyes will be on the FOMC's statement.


“We expect no significant changes to the statement language, with a small risk that a more upbeat inflation outlook ends up sounding hawkish,” TD Securities said in a note on Friday. “Conversely, market risks are asymmetric to a dovish surprise as pricing for a June hike has risen to nearly 90 percent.”


Investors will also scrutinise the latest US jobs data with the ADP employment report on Wednesday, weekly jobless claims on Thursday and the government's nonfarm payrolls report on Friday.  


Other US economic reports due this week include personal income and outlays, Chicago PMI, pending home sales index, and the Dallas Fed manufacturing survey, due today; PMI and ISM manufacturing indexes, and construction spending, due Tuesday; as well as international trade, productivity and costs, PMI services index, ISM non-manufacturing index, and factory orders, due Thursday.


Last Friday, a Commerce Department report showed US gross domestic product grew at an annual rate of 2.3 percent in the first quarter, beating economists’ expectations but easing from the 2.9 percent pace in the fourth quarter. 


“The slowdown in GDP growth .. was a slight disappointment since the tax cuts should have provided an immediate boost," Paul Ashworth, chief US economist at Capital Economics, said in a note on Friday. "Nevertheless, given that the economy has repeatedly swooned in the first quarter in recent years, the Fed won’t be too concerned, particularly not at a time when price inflation and wage growth are surging."


Indeed, "with the core PCE deflator increasing at a 2.5 percent annualised pace in the first quarter, well above the 2 percent target, and ECI private wages increasing at a 4 percent annualised rate, the Fed will need to hike interest rates more aggressively this year and that will lay the seeds for an economic slowdown starting next year," according to Ashworth. 


Wall Street ended mixed on Friday. The Dow Jones Industrial Average closed 0.1 percent weaker. The Standard & Poor’s 500 Index finished the day with a 0.1 percent gain, while the Nasdaq Composite Index eked out a 0.02 percent increase.


For the week, however, all three indexes declined. 


With more than half of the S&P 500 companies having reported first-quarter earnings, analysts now expect first-quarter earnings growth of 24.6 percent, more than double expectations at the beginning of the year, according to Reuters.


US Treasuries rose on Friday, sending the yield on the 10-year note two basis points lower to 2.96 percent. Earlier in the week it rose above 3 percent, a level considered worrisome by many investors and analysts.


“Interest rates, the 10-year, is the biggest issue that kind of hangs over the market,” Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh, told Bloomberg. “It can bring the party to an end—and by party, I mean the actual economic activity on Main Street that is driving Wall Street right now.”


In Europe, the Stoxx 600 Index ended Friday with a 0.2 percent advance from the previous day’s close.


Here, investors will eye reports on euro-zone preliminary first-quarter gross domestic product on Tuesday, as well as producer and consumer inflation on Wednesday. 



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