World Week Ahead: US earnings season starts
Wall Street dropped on disappointment with Friday's nonfarm payrolls report and investors are looking to the start of the first-quarter earnings season for fresh clues.
Financial markets were closed on Friday for the Easter holiday when a report showed that the US added 120,000 jobs in March, which was short of expectations for an increase of 203,000.
Just like last week, this week is a short one for Europe as financial markets were closed on Monday for the Easter holiday. Wall Street, however, was open today.
In early afternoon trading, the Dow Jones Industrial Average fell 0.82 percent, while the Standard & Poor's 500 dropped 1.10 percent and the Nasdaq Composite Index declined 0.96 percent.
After a stellar first quarter, the second quarter has gotten off to a rough start. The S&P 500 shed 0.7 percent in the four days of trading last week, while the Dow and the Nasdaq dropped 1.2 percent and 0.4 percent respectively in the same period.
By comparison, both the Dow and the S&P 500 posted their best first quarters since 1998 in the first three months of 2012, while the Nasdaq had its best since 1991.
Investors will look to earnings for indications on whether recent and further gains are justified. Alcoa is set to release results after the market closes on Tuesday. Other companies due to report this week include Google, JPMorgan Chase and Wells Fargo.
"If management commentary indicates that business is holding up despite the apparent slowing of European economies, that would be very encouraging for stocks," John Carey, portfolio manager at Pioneer Investment Management in Boston, told Reuters. "On the other hand, if orders are dropping or consumer spending doesn't appear sustainable, that could lead to some downward pricing action and earnings revisions."
Investors will also eye Federal Reserve chairman Ben Bernanke who is scheduled to speak a couple of times this week, including later today, and comments by other policy makers, and then there's the Fed's Beige Book report on the state of the world's biggest economy on Wednesday.
On the economic front, there will be data on jobless claims as well as the Reuters and University of Michigan's preliminary consumer sentiment reading in the coming days.
Also due are the trade balance report for February, consumer and producer price inflation reports for March, the import and export price indexes for March and wholesale inventories for February. The Treasury will release its monthly budget report and hold auctions of 3-year and 10-year notes, and 30-year bonds.
In other news, Facebook today said it will pay US$1 billion in cash and stock for photo-sharing application Instagram as it prepares for its initial public offering. The deal is expected to close later this quarter.
Instagram, which allows users to add filters and effects to pictures taken on their smartphones, has gained about 30 million users since it first launched in January 2011, according to Reuters.
In Europe, the Stoxx 600 Index declined 1.6 percent last week.
The euro-zone's sovereign debt crisis has taking a front seat again with increasing concern about Spain's ability to deal with its debt load and rising borrowing costs.
Spain is in “extreme difficulty,” Prime Minister Mariano Rajoy said last week, and investors are worried that there's another financial bailout ahead as the ink on Greece's second rescue has barely dried.
“The fact that Spain is back in the news makes equity investors nervous about where we go from here,” Peter Dixon, global equities economist at Commerzbank in London, told Bloomberg News. “So long as we have some kind of concern to worry about, there are going to be limits to which equities will be able to take off.”
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