World Week Ahead: US consumer in spotlight

Monday 15th August 2016

A slew of US retailer results as well as the minutes from the July Federal Reserve meeting and data on US consumer prices will form a key focus in the coming days.

Target, Wal-Mart, Home Depot, TJX Companies, Ross Stores, Gap, and Urban Outfitters are among US retailers releasing their latest quarterly earnings this week. Also scheduled to report are Cisco, Nestle and Deere.

Last Friday shares of Nordstrom, the top US luxury department store chain, soared 8 percent. after it posted second-quarter profit that beat analysts’ expectations. Nordstrom was the latest department store to please investors following Macy’s and Kohl’s earlier in the week.

Even so, a disappointing report on US retail sales on Friday reminded investors that consumers might be tightening their purse strings, and helped lower expectations the Fed will raise interest rates soon.

“Investors aren’t viewing the Fed as an immediate threat, with the economy growing just slow enough to keep them from raising right now,” Terry Morris, Wyomissing, Pennsylvania-based managing director of equities at BB&T Institutional Investment Advisors, told Bloomberg.

The Atlanta Fed downgraded its forecast for GDP growth in the third quarter of 2016 to 3.5 percent on Friday, from 3.7 percent on Tuesday.

To be sure, some questioned the weak retail sales data.

"You have had two months of very strong job growth. It just seems very odd that spending would be weak. I will wait for the revisions before declaring July retail spending means anything more than random volatility," Steve Blitz, chief economist at M Science in New York, told Reuters.

For fresh clues on rates, investors will pour over minutes from the July 26-27 Federal Open Market Committee meeting, set for release this Wednesday.

Meanwhile, there are also speeches from Atlanta Fed President Dennis Lockhart on Tuesday and again on Wednesday, as well as from St Louis Fed's James Bullard on Thursday, and San Francisco Fed's John Williams on Friday.

The latest economic data will arrive as reports on the Empire State manufacturing survey and the housing market index, due today; consumer price index, housing starts and industrial production, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; as well as weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday.

Wall Street remains near record highs. Last week, the Dow Jones Industrial Average rose 0.2 percent, the Standard & Poor’s 500 Index gained 0.1 percent, while the Nasdaq Composite Index advanced 0.2 percent. It was Wall Street’s sixth weekly gain in seven, according to Bloomberg.

“A lot of people who were scared out of equities earlier this year think they’re missing the train and want back in, and valuations haven’t necessarily deterred them,” BB&T Institutional Investment Advisors’ Morris told Bloomberg.

Another reason for optimism is that corporate results have been better than expected overall. With most S&P 500 members through with reporting quarterly results, 78 percent beat profit forecasts while 56 percent surpassed on sales; even so, the S&P 500’s price relative to future earnings now stands at 18.6, the highest since 2002, according to Bloomberg.

In Europe, the Stoxx 600 Index climbed 1.4 percent for the week.

Investors will eye euro-zone data including the trade balance and ZEW economic sentiment, due Tuesday; and the current account and consumer price index, due Thursday.

(BusinessDesk)

BusinessDesk.co.nz

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