World Week Ahead Bernanke watch, US earnings

Monday 8th July 2013

Federal Reserve Chairman Ben Bernanke's speech on Wednesday will be firmly on everyone's radar for clues on the tapering of the central bank's bond-buying program following the latest better-than-expected US employment report.) -

Labor Department data showed on Friday that employers added 195,000 new jobs to their payrolls last month, comfortably beating expectations. The unemployment rate was steady at 7.6 percent as more people began looking for work. Wall Street closed with gains of 1 percent for the three key indexes.

Bernanke is scheduled to speak on the history of Fed policy at the National Bureau of Economic Research in Boston on Wednesday. The same day, the Fed will also release the minutes from its June 18-19 meeting.

"The market's already priced in the tapering," Tony Crescenzi, executive vice president at Newport Beach, California-based Pacific Investment Management, told Bloomberg News. "The market is pulling forward the date at which it thinks the tapering will turn to no asset purchases."

Last week-shortened by Independence Day, the Dow Jones industrial average climbed 1.5 percent, the Standard & Poor's 500 Index rose 1.6 percent, while the Nasdaq Composite Index added 2.2 percent.

US Treasuries, however, got hammered by the jobs data, pushing yields on the 10-year note to the highest level in almost two years on Friday, amid expectations the Fed will begin its taper sooner, rather than later.

The yield on the 10-year note last week climbed 25 basis points to 2.74 percent.

That might hit demand for the fresh supply this week too. The Treasury is set to auction US$32 billion in three-year notes on Tuesday, US$21 billion in 10-year bonds on Wednesday and US$13 billion in 30-year bonds on Thursday.

First though, investors will turn their attention to the start of a new earnings season. Alcoa is set to release second-quarter results after the market closes on Monday.

Earnings at S&P 500 companies are predicted to increase 1.6 percent in the second quarter from a year ago, while quarterly revenue is forecast to rise 2.9 percent from a year ago, according to Thomson Reuters data.

"We think companies will exceed and beat that low bar," Alec Young, global equity strategist at S&P Capital IQ in New York, told Reuters. "So while Bernanke can always change the conversation, we think the news flow [this] week should be decent."

According to estimates compiled by Bloomberg, S&P 500 earnings are projected to have risen 1.8 percent from April through June, though the forecast is for a 1 percent drop in profits when financials are excluded. Also reporting earnings this week are JPMorgan Chase and Wells Fargo.

US economic reports released in the coming days include the NFIB small business optimism index, due Tuesday, wholesale trade data, due Wednesday, weekly jobless claims as well as import and export prices on Thursday, and the producer price index and consumer sentiment on Friday.

Fed Governor Daniel Tarullo speaks on Thursday before the Senate Banking Committee on systemic risk. Fed St Louis President James Bullard and Fed Philadelphia President Charles Plosser will speak on a panel about the economic outlook in Jackson Hole, Wyoming on Friday.

Also on Friday, San Francisco Fed President John Williams speaks on moderation in monetary policy in Vancouver, British Colombia.

In Europe, the Stoxx 600 Index added 1.2 percent last week as European Central Bank President Mario Draghi reassured investors that interest rates will remain low for an extended period, comments that sparked expectations of a rate cut.

On Monday, euro-zone finance ministers gather to decide whether to provide more funds to Greece as part of its international bailout. In other political news, it appears that Portugal Prime Minister Pedro Passos Coelho has managed to survive a crisis that threatened last week to topple his coalition government.

BusinessDesk.co.nz

Comments from our readers

No comments yet