World Week Ahead: Fed minutes, oil in focus

Monday 4th April 2016

Investors will scrutinise minutes of the US Federal Reserve’s latest meeting, in March, when they are released on Wednesday for further clues on potential US interest rate increases this year.

Last week Fed Chair Janet Yellen said the central bank will proceed cautiously when it comes to raising rates. The Fed’s March meeting had already showed that policy makers downgraded their expectations to two hikes this year, from four in December.

“Getting any colour will continue to be very important and so will getting a sense of what type of dissent was present among voting members," Eric Wiegand, senior portfolio manager at US Bank's Private Client Reserve in New York, told Reuters.

Yellen is due to speak on Thursday, along with former Fed chairs Ben Bernanke, Alan Greenspan and Paul Volcker.

Last Friday a Labor Department report showed nonfarm payrolls rose by 215,000 in March. The unemployment rate rose to 5.0 percent, from an eight-year low of 4.9 percent, as more people began looking for work.

“This is an ideal situation for the Fed,” Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters. “The strong pace of job growth is being offset by the increase in entrants into the labour force, which will reduce any concerns about labour market tightness fostering outsized wage inflation.”

Other Fed officials scheduled to speak in the coming days include Boston Fed President Eric Rosengren and Minneapolis Fed boss Neel Kashkari, today; Chicago Fed's Charles Evans on Tuesday; Cleveland Fed's Loretta Mester and Dallas Fed's Rob Kaplan on Wednesday; Kansas City Fed's Esther George on Thursday; and Kaplan again on Friday.

Last week the Dow Jones Industrial Average climbed 1.6 percent, the Standard & Poor’s 500 Index gained 1.8 percent, while the Nasdaq Composite Index rallied 3 percent.

The latest US economic reports slated for release this week include factory orders, due today; international trade, PMI services index, and the ISM non-manufacturing index, due Tuesday; weekly jobless claims, due Thursday; and wholesale trade, due Friday.

Investors are also gearing up for the latest US earnings season, unofficially starting with Alcoa’s results on April 11. Earnings are forecast to fall by 9.5 percent among S&P 500 companies, according to Bloomberg, though a survey of strategists showed they forecast the index will climb another 3.7 percent to 2,150 by the end of the year.

Oil might struggle amid fresh concerns about the outlook for the global glut. On Saturday a government report showed Russia's oil output increased 0.3 percent to 10.91 million barrels per day in March, its highest level since 1987, weeks before the country and other top oil producers gather in Doha to discuss ways to freeze output at January levels.

The data came a day after Bloomberg reported that Saudi Arabia’s deputy crown prince Mohammed bin Salman said the kingdom will only freeze production if Iran and others follow suit. Oil prices dropped on his comments, sliding 4 percent.

“I think the market interpreted the lack of Saudi reaction to the Iran position as meaning they are okay with the plan even if Iran is out,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, told Reuters. “So, now we're back to being consistent on what the Saudi position has been the last two years: That they're going to let the market decide supply-demand. To me, any freeze is just psychological. All will agree but nobody will do anything.”

In Europe, the Stoxx 600 Index slid 1.3 percent on Friday.

“The market is missing confidence,” Mathias Haege, managing partner of MaxAlpha Asset Consultant in Frankfurt, told Bloomberg. “At the end of the day, it doesn’t matter what central banks are doing if economic growth doesn’t accelerate and corporate earnings continue to shrink.”

The latest data slated for release here include euro-zone unemployment rate, due today; euro-zone services PMI and euro-zone retail sales, due Tuesday; Germany industrial production, due Wednesday; and the German trade balance, due Friday.

BusinessDesk.co.nz

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