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World Week Ahead: US earnings, ECB meeting

Monday 17th July 2017

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The latest US corporate earnings including from Bank of America and Goldman Sachs will form the focus in the coming days, as well as the European Central Bank policy meeting. 

Also, investors will eye China’s latest GDP data, due today. China's economy grew 6.8 percent in the second quarter, according to a Reuters poll of 65 economists, down from a 6.9 percent pace in the first quarter. The pace will ease to 6.6 percent in the third quarter and 6.5 percent in fourth quarter, according to the poll.

Wall Street is starting the week at record highs. Last week, the Dow Jones Industrial Average gained 1 percent, the Standard & Poor’s 500 Index advanced 1.4 percent and the Nasdaq Composite Index jumped 2.6 percent.

Both the Dow and the S&P 500 closed at record highs on Friday. The Nasdaq isn’t far behind.

However shares of Wells Fargo closed 1.1 percent down, while those of JPMorgan closed 0.9 percent weaker in New York on Friday, and those of Citigroup ended 0.5 percent lower after the banks reported their latest quarterly earnings.

While the banks beat profit expectations, each of the three was dogged by a mix of continuing concerns. For Wells Fargo, it’s struggling to rein in operating costs.

The latest US economic data published last Friday—including an unchanged consumer price index and a surprise decline in retail sales last month—offered fresh optimism that the Federal Reserve will show restraint when it comes to raising interest rates, with one more hike expected this year. 

"Admittedly, June’s retail sales and consumer confidence data were a little disappointing. But confidence remains at a reassuringly high level and we still expect that the strength of the labour market will help drive consumer spending growth," said Paul Ashworth, chief North American economist at Capital Economics, in a note.

US reports scheduled for release this week include the Empire State manufacturing survey, due today; import and export prices, and the housing market index, due Tuesday; housing starts, due Wednesday; weekly jobless claims, the Philadelphia Fed business outlook survey, and leading indicators, due Thursday.

While investors eye the latest data on the US housing market, some are warning that the industry’s stocks might have outrun their outlook. 

"The sentiment has been quite positive for housing but where they are today, I'm not a buyer of housing stocks," Erin Browne, global macro portfolio manager at UBS O'Connor in New York, told Reuters. “The stocks have run up faster than the data supports and there are better pockets of value in the market.”

In Europe the Stoxx 600 gained 0.2 percent last Friday, bringing its advance for the week to 1.8 percent. 

ECB policy makers gather on Thursday. While the central bank is not expected to announce policy changes, any comments by President Mario Draghi in the post-meeting press conference will be closely eyed for any hints of more hawkishness. 

"Draghi is likely to remain steadfast in maintaining its ultra-accommodative policy stance, but again recognising a more balanced outlook," National Australia Bank said in a note. 

Meanwhile, the region’s latest economic data on tap this week include eurozone CPI, due today; Germany's ZEW economic sentiment, due Tuesday; Germany's producer price index, and eurozone current account, due Thursday.

Analysts are upbeat about the second-quarter earnings season for European companies, set to start this month, predicting 9 percent year-on-year earnings growth for top European firms, compared to about 8 percent for the US, according to Thomson Reuters I/B/E/S.

The Bank of Japan will also release a policy statement on Thursday. 


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