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World Week Ahead: US consumer prices on radar

Monday 12th February 2018

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Following a week dictated by vertigo-inducing volatility on equity markets amid the spectre of rising interest rates, investors will scrutinise the latest report on US consumer prices. 

Even as Wall Street rebounded on Friday — when the Dow Jones Industrial Average rose 1.4 percent, the Standard & Poor’s 500 Index gained 1.5 percent and the Nasdaq Composite Index climbed 1.4 percent — it still posted a slide for the week. 

In the last five trading days, the Dow retreated 5.2 percent, as did the S&P 500, while the Nasdaq gave up 5.1 percent.

“Stocks are looking for a bottom and trying to find where the selling ends,” Willie Delwiche, investment strategist at Baird in Milwaukee, told Reuters. “It’s really looking and trying to figure out how low they can go at this point, and there’s not conclusive evidence yet that we know the answer to that.”

US Treasuries fell on Friday, sending the yield on the 10-year note two basis points higher to 2.85 percent. It remains close to four-year highs, a key driver for the wild swings on stock markets.

“That’s part of this recalculation that has gone on in the market: How do we factor in higher bond yields?” Delwiche said. “And that is a process that is playing out.”

Wednesday’s report on the US consumer price index will be closely watched to assess the potential for a faster pace of Federal Reserve interest rate increases. The Labor Department report is expected to show prices grew at a 2.1 percent annual rate in January, the same pace as in December, according to a Reuters survey. 

First, investors will eye a speech by Cleveland Fed President Loretta Mester, who votes on the Fed’s monetary policy committee this year, on Tuesday for any insight on the central bank’s rate outlook.

Other US data slated for release this week include the Treasury budget, due today; NFIB small business optimism index, due Tuesday; retail sales, Atlanta Fed business inflation expectations, and business inventories, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, producer price index, Empire State manufacturing survey, industrial production, and housing market index, due Thursday; as well as housing starts, import and export prices, consumer sentiment, and e-commerce retail sales, due Friday. 

So far many analysts remain upbeat about the outlook for the US economy and corporate earnings. 

“Considering positive economic data and rising corporate profits, we remain favourable on the longer-term investing environment despite the near-term volatility as leveraged trades continue to unwind in a messy and choppy fashion,” John Lynch, chief investment strategist at LPL Financial Research, said in a blog post on Friday.

Dr Pepper Snapple Group, Coca-Cola, PepsiCo, Cisco, Kraft Heinz, and Deere are among the US companies scheduled to release earnings in the coming days. 

Meanwhile, shares of UPS and FedEx dropped on Friday following a report by the Wall Street Journal that is preparing to launch a delivery service for businesses.

Dubbed “Shipping with Amazon,” or SWA, the new service will entail the tech giant picking up packages from businesses and shipping them to consumers, the Journal reported, citing people familiar with the matter.

Amazon expects to roll out the new delivery service in Los Angeles in coming weeks with third-party merchants that sell goods via its website, and Amazon then aims to expand the service to more cities as soon as this year, according to the Journal. 

Amazon is planning to undercut UPS and FedEx on pricing, although the exact rate structure is still unclear, the Journal reported.

In Europe, the Stoxx 600 Index finished Friday with a 1.4 percent drop from the previous day’s close. The index closed at the lowest level in more than five months, according to Bloomberg. 

Here, investors will eye the latest corporate results from Nestle and Credit Suisse. 


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