World Week Ahead: Fed meeting in focus

Monday 15th June 2015

A meeting of Federal Reserve policy makers forms the key focus for the coming days, though the ongoing precarious arm wrestling between Greece and its international creditors won’t be far behind.

The Federal Open Market Committee begins a scheduled two day meeting on Tuesday. Afterwards, on Wednesday, chair Janet Yellen will hold a press conference. Many analysts expect the Fed to raise rates in September.

Wall Street slumped on Friday, sending all three benchmark stock indices lower amid concern Greece won’t reach a deal on the beleaguered nation’s debt before a key deadline this month, risking default and an exit from the euro. The Dow Jones Industrial Average dropped 0.8 percent, the Standard & Poor’s 500 Index shed 0.7 percent, while the Nasdaq Composite Index fell 0.6 percent.

Both the Dow and the S&P 500 still managed to hold onto gains for the week, with the Dow adding 0.3 percent, and the S&P 500 eking out a 0.1 percent advance. The Nasdaq Composite Index slid 0.3 percent.

Europe’s Stoxx 600 Index dropped 0.9 percent on Friday, which left it with a 0.1 percent gain for the week.

“I’m beginning to get concerned,” Henrik Drusebjerg, chief strategist at Carnegie Investment Bank in Copenhagen, told Bloomberg. “You’re caught in a dilemma. You can’t seek the bond market for protection. You’re scared for the stock market because of Greece and the Fed, which is closing in on the first rate hike. A lot of investors are very frustrated as to where to place their money.”

As talks continued over the weekend, Germany reminded Greece it’s playing with fire, increasingly risking a potential exit from the euro.

“The shadow of a Greek exit from the euro zone is becoming increasingly perceptible,” German Economy Minister and Vice-Chancellor Sigmar Gabriel wrote in a Bild newspaper opinion column to be published on Monday, Bloomberg reported. “Greece’s game theorists are gambling the future of their country. And Europe’s too.”

While US economic data have been mixed, failing to show a straightforward uptick in the second quarter following a first quarter contraction, the latest reports on jobs, consumer confidence, and inflation have underpinned optimistic views. Still, data-driven US policy makers are likely to wait for further evidence of strength.

"While more progress needs to be seen before the Fed feels sufficiently confident in the sustainability of the recovery, they will certainly take comfort in the fact that things are beginning to move in the right direction," Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.

This week, the latest US economic clues will arrive in the form of the Empire State manufacturing survey, housing market index and industrial production, due today; housing starts, due Tuesday; consumer price index, weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and Atlanta Fed business inflation expectations, due Friday.

In Brussels today, European Central Bank president Mario Draghi is scheduled to testify before the European Parliament’s economic and monetary affairs committee, with comments on the bank’s quantitative easing programme especially high on the radar of investors. Also, the Eurogroup of euro zone finance ministers gathers on June 18.

The Bank of England will release the minutes from its June policy meeting on Wednesday. According to a Reuters poll, the minutes will show all nine members of the Monetary Policy Committee voted to keep British interest rates at a record low of 0.5 percent this month.

In other central bank news, Bank of Japan policy makers begin their two day meeting on Thursday.

BusinessDesk.co.nz

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