World Week Ahead Central banks retain spotlight

Monday 18th November 2013

Minutes from the latest meetings of central bankers in the US, the UK and Australia will be scrutinised in the days ahead for further clues on the amount and type of support investors can continue to expect.

The unprecedented stimulus provided by the globe's top central banks, with the European Central Bank the latest to flag the potential for more, continues to propel global equities to fresh records.

Comments last week by US Federal Reserve Vice Chair Janet Yellen, who has been nominated to succeed Chairman Ben Bernanke when his term ends in January, were seen as an affirmation of an extended easy money policy.

"The Fed under Yellen will be concerned about US economic growth, meaning the likelihood of early tapering seems low," Michael Morris, head of equities at Mitsubishi UFJ Asset Management in London, told Bloomberg News.

On the economic front, there's the housing market index on Monday and the employment cost index a day later. On Wednesday there will be the consumer price index, retail sales, business inventories, and existing home sales.

Thursday will be another busy day with the producer price index and PMI manufacturing index flash data, weekly jobless claims, and the Philadelphia Fed survey. The week will end with the Kansas City Fed manufacturing index on Friday.

It was Yellen's concern about the economy that lifted Wall Street ahead of the weekend.

On Friday, the Standard & Poor's 500 Index climbed 0.4 percent to close at a record 1,798.18, while the Dow Jones Industrial Average gained 0.5 percent to finish at a record 15,961.70. The Nasdaq Composite Index rose 0.3 percent.

For the week, the S&P 500 added 1.6 percent, the Dow advanced 1.3 percent, and the Nasdaq rallied 1.7 percent.

"Monetary conditions are going to be easy for a very long period," Jonathan Lewis, chief investment officer at Samson Capital Advisors, told Bloomberg News. As a result, there remains little incentive for investors to shift their focus out of equities into bonds.

Minutes from the Fed's latest meeting will be released on Wednesday.

"I'd be looking at those minutes for evidence that they're considering reducing the threshold for raising rates, and I would view that as a hint that they're considering restarting the tapering process," Barry Knapp, managing director of equity research at Barclays Capital in New York, told Reuters.

There will be no shortage of Fed views to assess in the coming days with a seemingly endless rush to podiums in the US and overseas.

Boston Fed Bank President Eric Rosengren will speak on financial supervision in Abu Dhabi, on Monday followed on Tuesday by Bernanke's speech to the Washington chapter of the NABE, and Chicago Fed Bank President Charles Evans's talk on the economy and monetary policy in Chicago.

On Wednesday, New York Fed Bank President William Dudley will hold a press conference on regional and national economy in New York, while St Louis Fed Bank President James Bullard will be interviewed on the economy and monetary policy in Chicago.

On Thursday, Bullard, Fed Governor Jerome Powell and Richmond Fed Bank President Jeffrey Lacker each have speaking engagements. On Friday Kansas City Fed Bank President Esther George and Fed Governor Daniel Tarullo will step forward.

Investors will need to remind themselves that corporate America is still operating.

The latest corporate earnings will include retailers Home Depot, Best Buy, JC Penney, and Lowe's. Last week Macy's earnings and outlook provided reason for optimism in the industry, thought Wal-Mart's latest results left much to be desired.

In Europe, the Stoxx 600 Index gained 0.1 percent for the week, rising for the sixth week in a row.

In terms of economic data due here in the coming days, there are the euro-zone current account and trade balance, due Monday, euro-zone ZEW economic sentiment, due Tuesday, euro-zone PMI manufacturing data, due Thursday, as well as German final third-quarter GDP and German Ifo data, due Friday.

BusinessDesk.co.nz

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