World Week Ahead: Fed minutes awaited; Paris attacks may sap risk appetite

Monday 16th November 2015

Minutes from the Federal Reserve’s October meeting will be centre stage this week after last week’s slide in equities and commodities on expectations the US central bank will lift rates next month.

Assaults by Islamic State-backed militants in Paris over the weekend are also expected to impact on sentiment negatively, perhaps offering a safe-haven lift to the greenback, gold and US Treasuries.

"I sincerely hope these attacks will prove short in duration and will abate in intensity, in which case the market reaction will likely only include a brief safety bid in Treasuries," Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia, told Reuters.

Last week, the Dow Jones Industrial Average dropped 3.7 percent, while the Standard & Poor’s 500 Index slid 3.6 percent, and the Nasdaq Composite sank 4.3 percent.

Europe’s Stoxx 600 Index dropped 2.7 percent in the past five days.

“There are still ongoing concerns about slowing economic growth, and there are other worries about more QE in Europe versus a potential rate increase in US, which creates a dichotomy,” Patrick Spencer, equities vice chairman at Robert W Baird & Co in London, told Bloomberg. “The [US] higher dollar, higher rates and slower growth make investors worry, and the numbers in China haven’t been so great lately.”

Indeed, investors will scrutinise minutes from the Fed’s October meeting, released on Wednesday, as policy makers clearly reminded investors then that the potential of a December hike was firmly on the table. Comments from Fed Chair Janet Yellen and better-than-expected US jobs data have since underpinned that possibility, bolstering the US dollar.

"We have had a strong October jobs report and Yellen herself referring to a December rate rise as a 'live possibility' for the first time,” Chris Hare, economist at Investec, told Reuters.

First, Fed Governor Jerome Powell is set to speak on Tuesday, while New York Fed boss William Dudley, Atlanta Fed chief Dennis Lockhart, and Cleveland Fed President Loretta Mester will be on a panel at a conference on Wednesday. Other Fed officials holding talks this week include the Dallas Fed’s Rob Kaplan, also on Wednesday, Lockhart again on Thursday, and St Louis Fed President James Bullard, on Friday.

Investors will get a fresh take on the state of the US housing industry, with reports on the housing market index and housing starts slated for release on Tuesday and Wednesday respectively.

Other US data scheduled for the coming days include the Empire State manufacturing survey, due today; consumer price index, and industrial market index, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and the Kansas City Fed manufacturing index, due Friday.

Last Friday disappointing earnings from Nordstrom and Cisco, as well as weak US retail sales sent Wall Street lower. A Commerce Department on Friday showed that US retail sales eked out a smaller-than-expected 0.1 percent gain in October.

Several key retailers such as Home Depot, Wal-Mart, Lowe’s, and Target will report their latest quarterly earnings in the coming days. With more than 90 percent of S&P 500 components having reported, S&P 500 earnings are down 0.9 percent in the third quarter, according to Reuters.

Still, it’s not as bad as previously thought. Analysts are now predicting a 3.7 percent fall in S&P 500 earnings in the third quarter, an improvement on estimates for a 7.2 percent drop at the start of the season, according to Bloomberg.

Also in focus will be a monetary policy statement on Thursday at the end of a two-day meeting by Bank of Japan policy makers.

(BusinessDesk)

BusinessDesk.co.nz

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