World Week Ahead - Record start for week on Wall Street, as US jobs improve

Monday 6th May 2013

Wall Street kicks off the week at record highs, which might be all that's needed to underpin investors' faith in the road ahead.

Friday's US payrolls report not only surpassed expectations about the number of jobs created in April, it also showed upward revisions to the previous two months to the tune of 114,000 extra workers. That went a long way to easing concerns about recent signs of a slowdown in the pace of the recovery. The unemployment rate dropped to a four-year low of 7.5 percent.

Wall Street breathed a big sigh of relief. On Friday the Standard & Poor's 500 Index closed at a record 1,614.42, while the Dow Jones Industrial Average ended the day at a record 14,973.96, after surpassing the 15,000-mark earlier in the session.

Investors are likely to draw further confidence from those highs.

"We are probably going into a second-quarter soft patch, but it's not something that's going to derail the recovery," Julia Coronado, chief North American economist at BNP Paribas in New York, told Reuters.

In the past five days, the Dow advanced 1.8 percent, the S&P 500 gained 2 percent, while the Nasdaq Composite Index added 3 percent.

"This market has found a path of least resistance to the upside," Art Hogan, managing director of Lazard Capital Markets in New York, told Reuters.

Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, agrees.

"As we move through some of these psychological barriers, Dow 15,000 and S&P 500 1,600, that's a reinforcing confidence factor for investors to say: 'Wow, the market's continuing to move up. The recovery's intact. Maybe I need to increase my equity exposure,'" Cronk told Bloomberg News.

Warren Buffett, meanwhile, expressed sympathy for bond investors at Berkshire Hathaway's annual meeting over the weekend.

"I feel sorry for people that have clung to fixed-dollar investments," Buffett said.

The billionaire also said that Berkshire was and would remain, after his passing, "the 800 number when there is really some panic in the markets and people really need significant capital". Berkshire has about US$49 billion in cash.

As the latest earnings season is coming to an end, results showed that corporate America is in better shape than anticipated. Expected earnings growth is now at 5.2 percent, up from 1.5 percent at the start of reporting season, according to Reuters.

Companies reporting this week include Walt Disney, Nvidia and Priceline.com.

Investors will eye a speech by US Federal Reserve Chairman Ben Bernanke on Friday at a Chicago Federal Reserve banking conference for clues about his assessment of the surprisingly upbeat jobs data released two days after the conclusion of last week's Federal Open Market Committee meeting.

The latest clues on the American economy will come in the form of reports on consumer credit, due Tuesday, and wholesale trade and weekly jobless claims, both due Thursday.

In Europe, the Stoxx 600 Index climbed 1.7 percent in the past five days, supported by expectations for a reduction in borrowing costs which was delivered upon.

On Thursday the European Central Bank cut its deposit rate to a record low 0.5 percent. Mario Draghi's suggestion that the central bank was open to a negative rate, which weakened the euro against the US dollar, was downplayed on Friday by ECB Governing Council member Ewald Nowotny.

Investors will eye a meeting by Bank of England policy makers this week.

The nine-member Monetary Policy Committee led by Governor Mervyn King will keep the target for quantitative easing at 375 billion pounds (US$582 billion), according to all but one of 44 economists in a Bloomberg News poll.

The central bank is also expected to keep its benchmark interest rate at a record-low 0.5 percent.

BusinessDesk.co.nz

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