World Week Ahead: Focus on US housing, GDP

Monday 22nd September 2014

A fresh commitment from US Federal Reserve policy makers to maintain its supportive stance for the accelerating pace of growth in the world’s economy has brightened the outlook for Wall Street and the greenback.

This Friday, a report is expected to show another upward revision for the US economy’s pace of growth in the second quarter, up from the previously estimated 4.2 percent rate.

Meanwhile, finance ministers and central bankers from the Group of 20 said the global economy was “gaining some momentum, though it is uneven and risks remain.”

Indeed, “we are mindful of the potential for a build-up of excessive risk in financial markets, particularly in an environment of low interest rates and low asset price volatility,” according to G-20 officials in a communique released in Cairns, Australia, on Sunday.

Strategies proposed by the group will achieve 1.8 per cent of additional growth across the global economy over five years, according to Australia’s Treasurer Joe Hockey, who hosted the meeting.

“This result means we are 90 per cent of the way to meeting the 2 per cent growth ambition we set at our Sydney meeting,” Hockey said.

Last week, the Dow Jones Industrial Average rallied 1.7 percent, the S&P 500 climbed 1.3 percent, while the Nasdaq Composite Index rose 0.3 percent. On Friday, the Dow ended at a record closing high of 17,279.74, while the S&P 500 slipped 0.05 percent from a record closing-high the previous session.

This week will offer several reports on the US housing market, in which the pace of recovery so far has proven to remain slow. Data scheduled for release include existing home sales, due today, the FHFA house price index, due Tuesday, and new home sales, due Wednesday.

Other economic clues will arrive in the form of reports on the Chicago Fed national activity index, due today; preliminary PMI manufacturing index and Richmond Fed manufacturing index, due Tuesday; durable goods orders, weekly jobless claims, preliminary PMI services, and Kansas City Fed manufacturing index, due Thursday; and corporate profits, and consumer sentiment, due Friday.

A slew of Fed officials are scheduled to speak in the coming days. Today, New York Fed President William Dudley speaks in New York, while Minneapolis Fed President Narayana Kocherlakota discusses monetary policy objectives in Marquette, Michigan.

On Tuesday, Fed Governor Jerome Powell speaks at the St Louis Fed conference, as will Kansas City Fed President Esther George. George will later that day discuss the economy in Cheyenne, Wyoming.

On Wednesday, Cleveland Fed President Loretta Mester discusses the economic outlook, monetary policy, and communications, in Cleveland, while Chicago Fed President Charles Evans speaks at a conference on labour markets, in Washington. On Thursday, Atlanta Fed President Dennis Lockhart will speak in Jackson, Mississippi.

Adding to the buoyant mood late last week were shares of Alibaba, China’s biggest e-commerce company. The stock soared 38 percent to close at $93.89 in its first day of trading on the New York Stock Exchange. Shares in the US$21.8 billion initial public offering had been priced at US$68. And there’s further upside.

Friday’s “move is sustainable: the company is profitable, unlike some of its competitors, and it is a way for traders to tap into the Chinese growth story,” Mark Otto, partner with J Streicher & Co, who trades on the NYSE floor, told Reuters.

Keeping a lid on gains were shares of Oracle, which dropped 4.2 percent after the company said Larry Ellison resigned as chief executive officer and named Mark Hurd and Safra Catz as co-CEOs.

"Co-CEO structures are typically not ideal," Bill Kreher, an analyst at Edward Jones, told Reuters, adding most companies need the decisiveness that a single strong-willed leader offers.

Of 12 analysts who replied to an anonymous poll by Reuters, five said Catz would likely run Oracle, while one voted for Hurd. Four said both would continue to run the company, one said neither, and one said Thomas Kurian.

In Europe, the Stoxx 600 gained 1.2 percent last week.

The British pound strengthened 1.3 percent against the euro last week after Scottish voters on Thursday opted to remain within the United Kingdom.

“The result leaves the [Bank of England] on course, a lot of political uncertainty has been removed and the bank can focus on the strength of the recovery,” Azad Zangana, an economist at Schroder Investment Management in London, told Bloomberg News. “The [Monetary Policy Committee] can be confident that raising interest rates early next year will not hurt the recovery.”

Today, ECB President Mario Draghi speaks before the European Parliament’s economic and monetary committee in Brussels.

Economic data scheduled for release in Europe in the coming days include euro-zone consumer confidence, due today, and the Ifo survey of business conditions in Germany, due Wednesday.

BusinessDesk.co.nz

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