World Week Ahead: Fed hike ahead

Monday 12th June 2017

US Federal Reserve policy makers are widely expected to announce an interest rate increase at the end of their two-day meeting on Wednesday, while central banks in the UK, Japan and the Switzerland also gather in the coming days.

Importantly, however, investors will eye any clues as to when the Federal Open Market Committee might opt for a third hike this year, as previously signalled. Fed chair Janet Yellen is set to hold a press conference after the meeting ends on Wednesday.

“I’d be very surprised if they didn’t hike in June, given all the signals that they have sent,” Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore, told Bloomberg. While Wright still expects two more interest rate increases this year, the probability has increased that the FOMC will move only in June, he said.

Investors will also eye the latest US economic reports, including the NFIB small business optimism index and producer price index, due Tuesday; consumer price index, retail sales, and business inventories, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, Empire State manufacturing survey, import and export prices, and industrial production, due Thursday; as well as housing starts, Atlanta Fed business inflation expectations, and consumer sentiment, due Friday.

Last Friday in New York, the Dow Jones Industrial Average closed at a record high as gains in shares of Pfizer and those of JPMorgan & Chase, up 3.2 percent and 2.4 percent respectively, outweighed a decline in shares of Apple and those of Microsoft, down 3.9 percent and 2.3 percent respectively.

However, Friday’s early rallies in the Standard & Poor’s 500 Index and the Nasdaq Composite Index — which rose to intraday record highs of 2,446.20 and 6,341.70 respectively — evaporated later in the session, and they closed with declines of 0.1 percent and 1.8 percent respectively.

Tech stocks including Apple, Nvidia, Alphabet and Facebook slumped. Shares of Cloudera also sank as investors were unimpressed by the big-data software company's first quarterly earnings report since its initial public offering in April.

"Tech has been on a tear for a very, very long … time," John Praveen, managing director for Prudential International Investments Advisers in Newark, New Jersey, told Reuters, adding that investors may be using the Cloudera quarterly results as "an excuse to take some profits."

Meanwhile, shares of Nordstrom jumped 5.7 percent on Friday, extending Thursday’s rally after the company said the Nordstrom family formed a group to explore the possibility of taking it private.

The family group, which owns 31.2 percent of the retailer, is talking to buyout firms about raising US$1 billion to US$2 billion in equity to fund a potential bid to take the department store operator private, Reuters reported on Friday, citing people familiar with the matter.

The family group started talks with private equity firms this week and is expected to spend at least a couple of weeks to select an equity partner, the sources said on Friday, without identifying which firms are in talks with Nordstrom, according to Reuters. Once the group has secured equity financing, it will begin to make arrangements for a debt financing package, the sources told Reuters.

For the week, the Dow rose 0.3 percent. However, the S&P 500 slid 0.3 percent while the Nasdaq dropped 1.6 percent.

In Europe the Stoxx 600 Index added 0.3 percent last Friday, easing its decline for the week to 0.6 percent.

The UK’s FTSE 100 Index rallied 1 percent, while the pound weakened, after Prime Minister Theresa May and her party lost the parliamentary majority in an election as Brexit negotiations are scheduled to start later this month.

“I think hard Brexit went in the rubbish bin tonight,” said George Osborne, the former chancellor of the exchequer whom May sacked after he played a leading role in the campaign to remain in the European Union, on Friday, Bloomberg reported.

(BusinessDesk)

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