World Week Ahead: Focused on the light at the end of the tunnel

Monday 11th January 2010

Jobs reports out of Europe and the U.S. on Friday pointed to a bleak outlook for anyone looking for work and continuing angst for those who have jobs.

Yet investors remained focused on the light at the end of the tunnel - signs that the global recovery was gathering steam, albeit in fits and starts. Strategists and traders were divided on whether that was a bet they would place.

The latest economic numbers should have represented a curveball for investors, many market watchers said.

Payrolls at U.S. employers fell by 85,000 in December, versus expectations of no change. On a positive note, revised numbers for November showed there was a 4000 increase in jobs, the first advance in almost two years.

After further review, the latest data shows that employers remained wary of the outlook and unemployed workers were taking longer to find new jobs and some have stopped looking altogether.

That bleaker view appears to be what the Federal Reserve has been trying to highlight in recent months. While economic activity was improving, the labour market’s woes would take far more time to heal.

At first on Friday, shares on Wall Street did slide. Market analysts said investors initially interpreted the numbers - the headline 85,000 lost jobs - as a negative. However, late in the session, investors appeared to have dismissed the jobs report as an anomaly on the path to recovery and firmly turned their attention the start of the fourth quarter earnings season.

Alcoa kicks off the reporting season in the U.S. on Monday and it is widely expected to mark a turning point. The combined profit of companies in the S&P 500 is expected to increase in the fourth quarter from the year-earlier period for the first time since the second quarter of 2007, ending a record nine straight periods of declines, according to Bloomberg News.

Other companies on the earnings calendar next week include American Airlines’ parent, AMR Corp, KB Home, Cargill Inc, Intel Corp and JP Morgan on Friday.

Thomson Reuters proprietary research sees analysts expecting S&P 500 fourth-quater earnings to average a 184.2% increase - reflecting the depth of the recession a year ago.

On Friday, the Dow Jones Industrial Average rose 0.11% to 10,618.19, the Standard & Poor’s 500 Index was 0.29% higher at 1144.98 and the Nasdaq Composite Index gained 0.74% to 2317.17.

Earlier the Dow Jones Stoxx 600 rose 0.4% to 259.15 and ended higher for a fourth week. Deutsche Bank led the gains after it was upgraded by UBS. National benchmark indexes rose in every western European market, except Austria and Spain.

In Europe, the focus will be on central bankers with the European Central Bank and the Bank for International Settlements meeting this week. ECB officials will meet this week to discuss monetary policy and hold a news conference on Thursday in Frankfurt.

There are also concerns about Greece’s fiscal situation and Ukraine’s dispute with the International Monetary Fund as well as U.K. and Dutch dismay with Iceland’s efforts to restore its banking sector.

Friday’s U.S. jobs report resounded through the currency and bond markets, knocking the greenback and bolstering treasuries.

Traders are now pricing in a 33% chance the Fed will lift its benchmark interest rate by its June meeting, down from 60% odds a week ago, according to Bloomberg.

The dollar posted a 0.5% weekly decrease against the yen, its first drop since the five-day period ended December 11, and was down 0.6% versus the euro. The European currency gained 0.3% against the yen.

Benchmark 10-year Treasury notes were trading unchanged in price to yield 3.83%, while the 30-year bond was 15/32 lower to yield 4.72%, up from 4.69% late on Thursday. The U.S. Treasury plans to sell US$84 billion of coupon debt next week.

Last week, 10-year yields rose as high as 3.918%, their highest since early June, and the bond market is coming off its weakest year in a decade and worst month in more than five years, according to Reuters.

Businesswire.co.nz

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