World Week Ahead: Fed meets, Brexit watch

Monday 13th June 2016

As the US Federal Open Market Committee begins a two-day policy meeting on Tuesday, few bet it will raise interest rates this week and investors will scrutinise Fed Chair Janet Yellen’s post-gathering press conference for any clues on timing.

Earlier this month a report showed that US employers added a mere 38,000 jobs in May, the smallest gain in almost six years. That practically removed expectations for a rate increase this week. Traders see a 2 percent chance the Fed will raise rates on Wednesday, and a 21 percent chance it will do so at its July meeting, according to Reuters, citing CME FedWatch.

In further uncertainty, investors are trying to position themselves for the UK’s June 23 referendum on the country’s membership in the European Union, with recent signs British voters are leaning towards an exit, referred to as a Brexit.

“There isn’t a ton of bearishness, and there isn’t a ton of bullishness,” John Bailer, senior portfolio manager at the Boston Company Asset Management, told Bloomberg. “Investors are very uncertain about what the future is going to bring with the Brexit vote, interest rates potentially moving up and the election. There are a lot of people sitting on their hands not making any decisions.”

Last week, the Standard & Poor’s 500 Index declined 0.2 percent, while the Nasdaq Composite Index posted a 1 percent drop. The Dow Jones Industrial Average recorded a 0.3 percent gain.

The S&P 500 has been trading close to its record closing high of 2,128.28, set in July last year.

"Because we failed to break through to new highs, everybody's attention shifts back to reality, and they start looking for reasons to sell and take some profits," Robert Pavlik, chief market strategist at Boston Private Wealth in New York, told Reuters.

Investors will also eye a slew of US economic data, especially Tuesday’s report on retail sales.

There are also reports on the NFIB small business index, import and export prices, and business inventories, due Tuesday; the producer price index, Empire State manufacturing survey, industrial production, due Wednesday; the consumer price index, weekly jobless claims, Philadelphia Fed business outlook survey, current account, and housing market index, due Thursday; and housing starts, and Atlanta Fed Business expectations, due Friday.

A British exit of the European Union would pose problems to the region’s biggest banks, according to the president of German financial regulator Bafin.

"Everyone hopes that the British will decide in favour of the EU, so do I," Bafin President Felix Hufeld told Germany's Tagesspiegel newspaper in an interview.

If the British were to vote in favour of a Brexit, then that would be a problem for all the EU’s big banks.

"The largest institutions would get the biggest problems," Hufeld told the Tagesspiegel. "They have the most trading activities with or in London."

An ORB poll, taken on Wednesday and Thursday and published on Friday, for The Independent newspaper showed that 55 per cent of UK voters intend to vote for Britain to leave the EU in the 23 June referendum. That’s an increase from a previous poll in April.

Europe’s Stoxx 600 Index posted a 2.5 percent slide last week, after closing 2.4 percent lower on Friday.

Oil ended a recent rally that took prices back above US$50 a barrel with a 3 percent drop on Friday, with WTI settling at US$49.07.

"A lot of the supply disruptions that drove the market to US$50 are being resolved," John Kilduff, partner at New York energy hedge fund Again Capital, told Reuters. “There are also signs that at these prices, US oil production is likely to climb.”

BusinessDesk.co.nz

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