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World Week Ahead: Results from Netflix, Caterpillar

Monday 22nd January 2018

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Wall Street, at record highs, is expected to largely shrug off the US federal government’s shutdown and instead focus on the latest corporate earnings including from Nextflix, Procter & Gamble, Caterpillar and General Electric.

“The market has been largely yawning at this,” Burns McKinney, chief investment officer for Allianz Global Investors based in Dallas, told Bloomberg on Friday. “In the past year, they have disregarded all kinds of bad news. 

“If you can shrug off geopolitical turmoil with North Korea, if you can shrug off Brexit, then really the government shutdown is by and large a softball,” McKinney added. “This is really something that’s not unprecedented. We’ve seen this before.”

Last Friday, the Dow Jones Industrial Average rose 0.2 percent, the Standard & Poor’s 500 Index gained 0.4 percent, while the Nasdaq Composite Index climbed 0.6 percent. 

Both the S&P 500 and the Nasdaq closed at record highs. 

“From a longer-term perspective, corporate earnings are still strong, and we’re about to engage in the benefits of tax reform,” Kevin Miller, chief executive of E-Valuator Funds in Bloomington, Minnesota, told Reuters on Friday.

For the week, shortened to four days by the Martin Luther King Jr Day holiday, the S&P 500 advanced 0.9 percent, while both the Dow and the Nasdaq added 1 percent.

“Many of the employees in the nonessential departments are put on furlough and then paid retroactively,” notes Neil Dutta, head of US economics at Renaissance Macro Research, Bloomberg reported. “In 2013, we saw a 16-day shutdown and fourth-quarter GDP was 4 percent. Whatever hit there is, gets made up quickly thereafter.”

Indeed, a slew of US economic data were slated for release in the coming days but these won't be published if the government remains shut. 

They include reports on the Chicago Fed national activity index, due today; Richmond Fed manufacturing index, due Tuesday; FHFA house price index, PMI composite flash, and existing home sales, due Wednesday; international trade in goods, weekly jobless claims, retail inventories, wholesale inventories, new home sales, and leading indicators, due Thursday; as well as durable goods orders, and GDP on Friday. 

On Tuesday, world leaders and senior executives will gather in Davos, Switzerland, for the annual World Economic Forum. 

Given the government’s shutdown, the White House will decide “day-to-day” on whether US President Donald Trump, members of his Cabinet and other administration officials will attend Davos, Bloomberg reported. The US president is expected to arrive at Davos on Thursday, and deliver a speech on Friday.

US Treasuries fell on Friday, pushing yields on the 10-year note above 2.65 percent for the first time since June 2014, amid expectations that the Federal Reserve will continue to tighten monetary policy.

Chicago Fed President Charles Evans is set to speak on Tuesday, with his comments scrutinised for further clues on the timing of the next US rate hike, which is widely expected to come in March.  

In the latest potential corporate deals, shares of Bunge rallied to close 11.4 percent higher on Friday in New York. Archer Daniels Midland has made a takeover approach to Bunge, the Wall Street Journal reported on Friday, citing people familiar with the matter, setting up a possible bidding war after Glencore earlier made an overture to the agricultural powerhouse.

Details of the ADM approach are unclear and it’s possible neither company would succeed in buying Bunge, which had a market value of about US$9.8 billion as of Friday afternoon, the Journal reported, adding that ADM’s valuation was US$22.6 billion.

Shares of ADM rose 1.2 percent.

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

Investors will eye monetary policy decisions from the Bank of Japan on Tuesday, and from the European Central Bank on Thursday. 

"Those two meetings are important. It could ease concerns that there is an imminent shift in either of those central banks' policies. That could take some of the pressure off the dollar and yields," said Marc Chandler, head of fixed-income strategy at Brown Brothers Harriman, CNBC reported. 


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