World Week Ahead: Stocks power higher

Monday 24th November 2014

Wall Street begins a holiday shortened week at record highs as investors eye a meeting of the world’s top oil exporters to see whether they will curb production amid an extended slump in the commodity’s price.

Helping bolster the mood on markets worldwide on Friday, China unexpectedly lowered interest rates for the first time since July 2012, while European Central Bank President Mario Draghi pledged that policy makers “will do what we must to raise inflation and inflation expectations as fast as possible.”

On Wall Street last week, the Dow Jones Industrial Average climbed 1 percent, the Standard & Poor’s 500 Index rose 1.2 percent, while the Nasdaq Composite Index added 0.5 percent.

Both the Dow and S&P ended the week at record closing highs, lifting their gains for 2014 to 9.7 percent and 13.7 percent respectively.

US markets will close for the Thanksgiving holiday on Thursday and will close early on Friday. Volume of trading is expected to start to taper on Wednesday.

"It's tough for me to wrap my head around the next big move being lower," David Lebovitz, global market strategist at JP Morgan Funds in New York, told Reuters. "Some people aren't comfortable with current levels, but fundamentals remain strong.”

This week offers a slew of US economic data. There are several reports on the housing industry, with the FHFA house price index and S&P Case-Schiller home price index scheduled for release on Tuesday, followed by new home sales, and the pending home sales index on Wednesday.

Other reports include the Chicago Fed national activity index, preliminary PMI services, and Dallas Fed manufacturing survey, due today; a second reading of third quarter GDP, corporate profits, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; durable goods orders, weekly jobless claims, and consumer sentiment, due Wednesday; and Chicago PMI on Friday.

Hewlett-Packard and Deere are among US companies releasing their quarterly earnings in the coming days as the latest reporting season winds down.

There will also be a focus on Black Friday, the most important day of the year for many retailers.

In Europe, the Stoxx 600 Index climbed 2.9 percent last week, while the FTSE 100 Index rose 1.5 percent. Both benchmarks rallied strongly on Friday, with miners underpinning the advance in London on hopes that China is prepared to provide more stimulus to avert a hard landing.

Here closely watched data scheduled for release include Germany’s IFO gauge for business confidence, due today; Germany’s third quarter GDP, due Tuesday; Germany’s unemployment, but especially Germany’s CPI, as well as euro zone confidence, due Thursday; and euro zone CPI and unemployment, due Friday.

Regardless, the ECB’s Draghi has shown commitment to lifting both the pace of inflation and spur growth in the languid euro zone economy.

"Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely," Nick Kounis of ABN Amro told Reuters.

As for oil, the focus is on Vienna where on November 27 members of the Organization of the Petroleum Exporting Countries will gather. Half of the 20 analysts surveyed by Bloomberg News predict OPEC will reduce output at this week’s meeting, while the rest forecast no change.

Iran may push for a 1 million barrel a day cut, Mehr News reported on the weekend. Brent crude is trading about US$80 a barrel, roughly 30 percent lower than in June, as production outpaces demand.

As for China’s rate cut, analysts said challenges remain for the Asian powerhouse as it tries to navigate a soft landing for its economy.

“The Chinese announcement is supportive but not a game changer,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, told Bloomberg News.

BusinessDesk.co.nz

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