World Week Ahead: Yellen testifies on outlook

Monday 14th November 2016

As investors watch and digest the implications of Donald Trump’s upset victory in the US presidential elections, US Federal Reserve Chair Janet Yellen is set to testify on the country’s economic outlook before Congress on Thursday.

Last week, the Dow Jones Industrial Average jumped 5.4 percent, the Standard & Poor’s 500 Index rallied 3.8 percent as did the Nasdaq Composite Index, as investors piled into stocks that were seen benefitting from a Trump presidency, notably in the health, financial and infrastructure industries.

"Wall Street is going to be watching a lot of [Trump’s] appointments and policy announcements to see whether it validates the more optimistic tone we've seen in the markets in the past few days," Alan Gayle, senior investment strategist and director of asset allocation at RidgeWorth Investments in Atlanta, Georgia, told Reuters.

Some bet that bank stocks will rally, both as a result rising interest rates and policy changes, particularly the Dodd-Frank act that overhauled the industry’s regulation after the 2008 financial crisis.

"Of course, no one yet knows exactly what policy changes will occur and exactly how much they will help profits, but I think the benefit might be solid enough that I am maintaining my overweight holdings in the sector,” Ed Keon, managing director and portfolio manager of QMA, a multi-asset manager owned by Prudential Financial, told Reuters.

On Friday, the Dow added 0.2 percent, while the Nasdaq gained 0.5 percent. The S&P 500 fell 0.1 percent.

The implications of the US presidential vote are “most significant in the emerging markets, which are a dangerous place to be not only in the coming weeks, but probably also the coming months,” Witold Bahrke, a macro strategist at Nordea Investment Funds in Luxembourg, told Bloomberg told Bloomberg.

“Partly because of the protectionism tendency in the US policy from now, but also because of the significant rise in the [US] dollar, we might have focused too much on the pro-growth outcome of this election, and not enough on the flip side of the coin — much tighter financial conditions primarily driven by the [US] dollar,” Bahrke noted.

Last Friday, Fed Vice Chairman Stanley Fischer said “the case for removing accommodation gradually is quite strong.”

The central bank is widely expected to hike interest rates at its December policy meeting.

"In my view, the Fed appears reasonably close to achieving both the inflation and employment components of its mandate," Fischer said in prepared remarks for the Central Bank of Chile, Santiago. Aside from Yellen, the slew of Fed officials scheduled to speak publicly this week also include Robert Kaplan, Jeffrey Lacker, and John Williams, today; Eric Rosengren and Stanley Fischer, on Tuesday; James Bullard, Neel Kashkari, and Patrick Harder, on Wednesday; William Dudley and Charles Evans, on Thursday; and Esther George, as well as Bullard and Kaplan again, on Friday.

The latest US economic reports due for release in the coming days include retail sales, Empire State manufacturing survey, import and export prices, and business inventories, due Tuesday; producer price index, industrial production, Atlanta Fed business inflation expectations, and the housing market index, due Wednesday; consumer price index, housing starts, weekly jobless claims, and the Philadelphia Fed business outlook survey, due Thursday; and leading indicators, as well as the Kansas City Fed manufacturing index, due Friday.

A flurry of US retailers reporting their latest quarterly earnings in the coming days includes Home Depot on Tuesday, Target and Lowe's on Wednesday and Wal-Mart on Thursday.

In Europe, the Stoxx 600 Index fell 0.4 percent on Friday, tempering its advance for the week to 2.7 percent.

Investors will also eye Bank of England Governor Mark Carney who is set to testify before members of Parliament on Tuesday.

BusinessDesk.co.nz

Comments from our readers

No comments yet