World Week Ahead US data drop to set the tone

Monday 28th January 2013

Investors will look to corporate earnings, jobs data and a meeting of US Federal Reserve policy makers for further clues that the world's largest economy is recovering at a stronger-than-anticipated pace.

Wall Street closed the week at the highest levels since 2007 on better-than-expected earnings and economic data, and as the US Treasury won a three-month reprieve from hitting the debt ceiling.

Also adding to optimism is the expectation that Europe's banks will this week repay more of the emergency loans they were required to take from the European Central Bank at the height of the debt crisis, a sign that a corner has been turned.

A slew of reports on the US economy are due this week. The highlight will be January's jobs report. The US added 155,000 jobs this month, a report from the Labor Department due Friday is forecast to show.

The pace of jobs growth averaged 153,000 in 2012, according to Bloomberg data.

Other data due in the coming days include reports on durable goods orders, due Monday, consumer confidence, due Tuesday, as well as ADP employment and gross domestic product, both due Wednesday.

The Federal Open Market Committee holds its first two-day meeting of the new year, starting on Tuesday. The focus will be on whether there is any signal that the central bank is leaning toward ending asset purchases - perhaps later this year.

Companies reporting their latest earnings in the coming days include Yahoo!, Caterpillar, Seagate Technology, Amazon.com, Ford Motor, VMWare and Pfizer.

Standard & Poor's 500 Index companies that have reported quarterly results so far this earnings season have averaged a 7.7 percent rise in profit on 5.2 percent revenue growth, according to Reuters.

In the past week, the Dow Jones Industrial Average rose 1.8 percent while the S&P 500 climbed 1.1 percent, both extending gains to their highest levels in five years.

On Friday, the S&P closed at 1,502.96.

"Once we break above a resistance level at 1,510, we dramatically increase the probability that we break the highs of 2007," Walter Zimmermann, technical analyst at United-ICAP, in Jersey City, New Jersey, told Reuters. "That may be the start of a rise that could take equities near 1,800 within the next few years."

The most recent Reuters poll of Wall Street strategists estimated the S&P 500 would rise to 1,550 by year-end, not far off its all-time intraday record of 1,576.09 touched on October 11, 2007.

In Europe, the Stoxx 600 Index increased 0.9 percent last week, closing at the highest level in almost two years.

Italy is set to auction as much as 6.75 billion euros of notes due 2014 and inflation-linked securities due 2018 on January 28, while Finland is scheduled to sell 1 billion euros of 2028 securities the next day and Germany will offer 2 billion euros of 30-year bunds on Wednesday, according to Bloomberg.

On the commodity front, Fonterra chief Theo Spierings reiterated that the products of the world's largest dairy exporters are safe. Last week low levels of the chemical DCD were found in some products.

"We have strong science and we are providing assurances about the safety of our product," Spierings said according to an e-mailed statement to Bloomberg. "Our testing has found only minute traces of DCD in samples of some of our products. Our products are safe. Customers can rest assured."

(BusinessDesk)

BusinessDesk.co.nz

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