World Week Ahead: Yellen to speak on jobs

Monday 19th December 2016

Investors will be listening closely today to US Federal Reserve Chair Janet Yellen who is set to speak about the state of the job market.

Yellen is speaking in Baltimore, Maryland, following last week’s decision by the Federal Open Market Committee to lift its key target rate for the second time in a year, and signalling a steeper rate of rate increases next year than previously thought.

Yellen’s post-meeting comments last Wednesday underpinned investors’ bullishness on Wall Street, propelling the three key equity benchmarks to fresh record highs.

Even so the gains were more muted compared with the post US presidential election rally to date.

For the week, the Dow Jones Industrial Average added 0.4 percent. However, the Standard & Poor’s 500 Index and the Nasdaq Composite Index each slipped about 0.1 percent. Bank stocks halted their five-week advance, according to Bloomberg.

US Treasuries slid, pushing yields higher for the sixth straight week. Comparative valuations between equities and bonds are bolstering the relative appeal of Treasuries.

The S&P 500 dividend yield is 2.07 percent versus a yield of almost 2.6 percent for the benchmark 10-year US Treasury, according to Reuters.

“That is a big valuation disconnect, that will continue to keep people invested in bonds," Greg Peters, senior investment officer at PGIM Fixed Income in Newark, New Jersey, told Reuters.

The US dollar climbed last week, as investors positioned for higher rates in 2017.

"The scale of the move since the FOMC meeting has been significant, and you would expect to see some kind of profit-taking on dollar longs," David Gilmore, partner at FX Analytics in Essex, Connecticut, told Reuters.

While the outlook for the US economy remains upbeat, a Commerce Department report last Friday showed a larger-than-expected drop in US homebuilding. Residential starts sank 18.7 percent to a seasonally adjusted annual rate of 1.09 million units in November.

“The current message is one of optimism that single-family starts are going to continue to gain ground in the months ahead,” Joshua Shapiro, chief US economist at Maria Fiorini Ramirez in New York, said in a research note before the report, according to Bloomberg. “Whether recent sharp rises in interest rates have a dampening effect remains to be seen.”

Further clues on the housing market will arrive with reports on existing home sales on Wednesday, the FHFA house price index on Thursday, and new home sales on Friday.

Other economic data slated for release this week include reports on PMI services, due today; durable goods orders, GDP, weekly jobless claims, Chicago Fed national activity index, personal income and outlays, due Thursday; and as well as consumer sentiment, due Friday.

Thursday’s Commerce Department report is expected to show the US economy grew at a 3.3 percent annualised rate in the final estimate of third-quarter gross domestic product, according to a Bloomberg poll.

In Europe, the Stoxx 600 Index added 0.3 percent on Friday. That brought its gain for the week to 1.3 percent.

On Friday, shares of Actelion soared 10 percent to a record high. Sanofi is in advanced talks to acquire the Swiss drugmaker in a deal that could be announced as soon as this week, Bloomberg reported, citing people with knowledge of the matter.

On Tuesday, UK Prime Minister Theresa May will be questioned by the nation’s senior lawmakers about her plans for Brexit.

Also on Tuesday, Bank of Japan policy makers are expected to stand pat on policy at their last meeting of the year though there is some chatter that the BoJ may look to tweak its 10-year yield target at some point in 2017.

BusinessDesk.co.nz

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