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World Week Ahead: Earnings season accelerates

Monday 17th October 2016

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Earnings from Bank of America and other American companies and the latest US economic data including the consumer price index are a key focus this week, and speeches by Federal Reserve officials will be combed for clues on a December interest rate hike.

Bank of America, Goldman Sachs, and Morgan Stanley, as well as Netflix, Microsoft, General Electric and Intel are among the US companies scheduled to report their latest quarterly earnings in the coming days. 

"At the end of the day, it really is all about earnings," Karyn Cavanaugh, senior market strategist at Voya Investment Management in New York, told Reuters. “Every economic data point filters down into earnings.”

Investors will gauge US economic performance through reports on the Empire State manufacturing survey, and industrial production, due to be released today; consumer price index, and the housing market index, due Tuesday; housing starts, and Atlanta Fed business expectations, due Wednesday; as well as weekly jobless claims, Philadelphia Fed business outlook survey, existing home sales, and leading indications, due Thursday.

The Federal Reserve releases its Beige Book on Wednesday. 

Last Friday’s speech by Fed Chair Janet Yellen did little to change bets that the central bank will raise interest rates in December. Policy makers scheduled to speak this week include Fed Vice Chairman Stanley Fischer today, San Francisco Fed President John Williams and Dallas Fed’s Rob Kaplan on Wednesday, New York Fed’s William Dudley on Thursday, and Fed Governor Daniel Tarullo on Friday. 

“The domestic numbers are going to be important for the Fed, that’s what they care about, and they continue to line up nicely for a Fed rate hike,” Matt Maley, an equity strategist at Miller Tabak & Co in New York, told Bloomberg.

Last week, the Dow Jones Industrial Average fell 0.6 percent, while the Standard & Poor’s 500 Index retreated 1 percent and the Nasdaq Composite Index shed 1.5 percent. 

In Europe, the Stoxx 600 Index rose 1.3 percent last Friday, posting a 0.1 percent advance for the week.

On Thursday, a meeting of European Central Bank policymakers and a subsequent press conference by President Mario Draghi will be scrutinised for any clues about plans to change—whether extend or taper—its asset purchase program.Also on Thursday, European Union leaders gather for a two-day summit in Brussels, which might offer further details on the Brexit negotiations—a new key barometer for the British pound.

“It’s one thing to try and model an economic outlook, but when we’re trying to work out what the politicians are going to do, it’s impossible,” Jane Foley, a senior currency strategist at Rabobank International in London, told Bloomberg. “Therefore it’s very likely that we’ll have markets reacting to headline news and we’ll have volatility. The warnings about Brexit are coming to fruition, and [last] week has marked a sea change in market sentiment.”

China’s third-quarter GDP report, due Wednesday, will also be watched closely as concern about the country’s economy resurfaced. 

“Growth on our China Activity Proxy—which we think is a more reliable measure of economic activity than the official [GDP] figures—points to a sharper rebound last quarter, said Capital Economics' Chang Liu said in a note, forecasting that year-on-year growth rose to about 5.0 percent, up from 4.4 percent in the second quarter.

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