World Week Ahead: Fed talk, US retailers

Monday 12th August 2013

Wall Street will keep its collective eye on speeches by US Federal Reserve officials as well as the latest monthly retail sales data and the latest quarterly earnings of a slew of American retailers including Wal-Mart.

On Friday, the Dow Jones Industrial Average shed 0.5 percent, while the Standard & Poor’s 500 Index fell 0.4 percent and the Nasdaq Composite Index slid 0.3 percent. That brought the declines for the week to 1.5 percent for the Dow, 1.1 percent for the S&P 500 and 0.8 percent for the Nasdaq.

“There is still plenty of skepticism and anxiety in the market,” Hank Smith, chief investment officer at Radnor, Pennsylvania-based Haverford Trust, told Bloomberg News. “It will be interesting to see if investors take advantage of this pullback as they did clearly in the pullback in May-June.”

So far in 2013, the S&P 500 has climbed 20.1 percent, while the Dow has gained 19.5 percent.

A key part of the market's surge this year has been a rebound in the shares, and fortunes, of America's biggest banks. Financials have added nearly 25 percent this year, lagging only healthcare and consumer discretionary shares, Reuters says.

And if financials can extend their rally, they could potentially push tech stocks out of the top spot among the S&P 500's 10 industry sectors—the first time they'd be leading the market since May 2008.

"Now that financials and tech are relatively equal, that is an indicator that the market is very balanced at this point in time," Doug Cote, chief market strategist at ING US Investment Management in New York, told Reuters.

In the coming days, retailers Wal-Mart Stores, Kohl’s, Gap and Nordstrom are scheduled to release their latest earnings. Also due are reports from Home Depot, Hewlett-Packard, Staples and Best Buy.

Some 449 companies in the S&P 500 have reported quarterly results so far this earnings season. Among them, 72 percent have exceeded analysts’ profit estimates and 56 percent have beaten sales projections, data compiled by Bloomberg show.

The latest economic data will arrive in the form of reports on retail sales, import, and export prices, as well as business inventories, due Tuesday, followed by the producer price index, consumer price index, and the housing market index, due Thursday, and housing starts on Friday.

Retail sales climbed 0.3 percent in July after a 0.4 percent advance in June, according to the median forecast of 64 economists surveyed by Bloomberg.

Last week marked a bit of a respite for commodities with copper, gold and oil ending the week on a positive note after China's industrial output data helped calm fears of a hard landing for the Asian's powerhouse's economy.

Copper paced the advance, rising about 4 percent last week alone, its best one-week performance in almost a year.

"The numbers out of China suggest that things are getting better," Jonathan Barratt, chief executive of commodity research firm Barratt's Bulletin, told Reuters. "Base metals are getting a good lead with that and if we can maintain these levels we could be in for a good run."

Investors will again eye further comments from US Fed officials to gauge their take on the potential and timing of a downgrade in its bond-buying program. Last week policy makers—Dallas Fed President Richard Fisher, Chicago Fed President Charles Evans and Cleveland Fed President Sandra Pianalto—all suggested the central bank might start easing back the pace of its bond purchases as early September.

On Tuesday, Atlanta Fed President Dennis Lockhart speaks on the economic outlook in Atlanta. The next day, St Louis Fed President James Bullard gives a speech on challenges with monetary policy in Paducah, Kentucky.

In Europe, the Stoxx 600 Index gained 0.6 percent last week.

Here, investors will keep an eye on reports including German CPI, euro-zone industrial production and ZEW's euro-zone economic sentiment, due Tuesday, euro-zone second-quarter GDP, due Wednesday, and euro-zone CPI, due Friday.

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