World Week Ahead: IMF outlook, US reporting season in focus

Monday 11th April 2016

Investors this week are eyeing the start of the second-quarter US reporting season as well as an update from the International Monetary Fund about the global economic outlook.

Alcoa is set to report its latest results today, unofficially marking the start of a new profits season. Analysts forecast earnings will decrease for a fourth straight quarter, according to data compiled by Bloomberg.

Wall Street last week gave up some of its recent gains as concerns about the global economy and the impact on corporate earnings resurfaced. Last week the Dow Jones Industrial Average fell 1.2 percent, and so did the Standard & Poor’s 500 Index, while the Nasdaq Composite Index retreated 1.3 percent.It was the S&P 500's second weekly drop on the three weeks since the gauge erased an 11 percent decline for the year, Bloomberg noted.

“The market is indicating the central-bank driven rally is running out of steam,” Aaron Waxman, principal at Bingham Osborn & Scarborough in San Francisco, told Bloomberg. “We may get earnings surprises but that’s in the broader context of higher prices. It’s just hard to push up stocks in a meaningful way at this point.”

Also reporting this week are JPMorgan Chase, Wells Fargo, Bank of America and Citigroup; their results are not expected to be pretty. Global investment banks have been hammered by the volatility in markets, geopolitical tensions and slow growth.

Analysts predict the financial sector will show a 9.2 percent decline in earnings in the latest quarter and a 0.2 percent advance in sales, according to Reuters.

In Europe, some including Francois Perol, chairman of France's second-biggest retail bank BPCE, are concerned about the region’s banks.

“I am much more worried than I was in 2009 in certain respects,” Perol said outside a closed-door conference, held on the shores of Lake Como, Reuters reported.

In 2009 “it was 100 percent clear what had to be done,” Perol noted. “I think it's more of a difficult situation for banks [now] because fundamental changes are underway in an environment that's incredibly challenging due to negative interest rates."

In his annual letter to shareholders last week, JPMorgan’s Jamie Dimon said some regulations need to be revised. Though he said a key concern for him is that the Federal Reserve may end up lifting US interest rates far faster than markets expect.

US Treasuries rose last week, with yields on the benchmark 10-year note declining by five basis points.

Europe’s Stoxx 600 Index slid 1.3 percent last week, the fourth straight weekly fall.

The International Monetary Fund and the World Bank will detail through the week, ahead of their annual Spring meetings starting on Friday, their take on the global economy. Last week IMF managing director Christine Lagarde warned that the global economic growth momentum was weak, while risks were probably on the rise, and confidence sorely lacking.

On Friday, China is set to release a raft of data including first quarter GDP as well as March data on industrial output, retail sales and investments in fixed assets. The reports will provide a check on the recent spate of both monetary and fiscal measures the government has implemented to keep the world's second-largest economy from stalling.

BusinessDesk.co.nz

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