World Week Ahead: Eyes on US consumer

Monday 11th August 2014

Investors will watch the latest US retail sales data to gauge the strength of the American consumer, who accounts for more than two-thirds of the nation’s spending.

On Friday Wall Street rallied, helped by an easing of tension over Ukraine and better-than-expected earnings from companies including Coach, Gap, and Nvidia. The Dow Jones Industrial Average jumped 1.1 percent, as did the Standard & Poor’s 500 Index, while the Nasdaq Composite Index increased 0.8 percent.

Friday’s recovery helped the benchmark indices post gains for the week: the Dow gained 0.37 percent, the S&P 500 rose 0.33 percent, and the Nasdaq added 0.42 percent.

Meanwhile, US Treasuries also advanced for the week as investors fled to their relative safety as there remains plenty of concern that escalating conflicts will hurt global economic growth. Yields on the 10-year bond slid seven basis points to 2.42 percent last week.

“The geopolitical environment has really overwhelmed everything else,” Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York, told Bloomberg News. “These problems are impossible to gauge and present tremendous uncertainty in the market that is likely to be here for some time, and that has sent investors looking for safety.”

Steven Englander, global head of G10 foreign exchange strategy at CitiFX in New York, agreed.

"Geopolitical issues in different parts of the world are going much further than anyone expected," Englander told Reuters.

Helping offset those issues, US corporate earnings so far this quarter have generally offered optimism about the profit outlook. Cisco, Deere, Macy’s, JC Penney, and Wal-Mart are among companies set to report their latest earnings in the coming days.

Several US Federal Reserve officials are scheduled to speak in the coming days and investors remain attentive to any clues about the timing of an interest rate increase as the US economy keeps offering signs of strength.

Today, Fed Vice Chair Stanley Fischer will speak at a Swedish Finance Ministry conference in Stockholm.

On Wednesday, New York Fed President William Dudley and Boston Fed President Eric Rosengren will talk at a workshop on wholesale funding risks in New York, and on Friday Minneapolis Fed President Narayana Kocherlakota speaks in Brainerd, Minnesota.

The latest US economic data scheduled for release this week include the NFIB small business optimism index, due Tuesday; retail sales, Atlanta Fed business inflation expectations, and business inventories, due Wednesday; weekly jobless claims, and import and export prices, due Thursday; the Empire State manufacturing survey, industrial production, and consumer sentiment, due Friday.

Investors will watch the latest monthly retail sales to gauge the confidence of the almighty American consumer. Economists polled by Reuters expect the report to show a 0.3 percent increase, accelerating from a 0.2 percent advance in June.

In Europe, the Stoxx 600 slumped 2.1 percent last week, while the UK’s FTSE 100 Index fell 1.7 percent.

Here the latest data will arrive in the form of reports on euro-zone ZEW economic sentiment on Tuesday; Germany’s consumer price index and euro-zone industrial production on Wednesday; euro-zone second-quarter GDP as well as euro-zone CPI on Thursday.

On Wednesday Bank of England Governor Mark Carney will hold a press conference after the bank releases its quarterly Inflation Report including new economic forecasts.

On Saturday a report from the National Bureau of Statistics showed that China's consumer price index increased 2.3 percent year on year in July, the same rate as in the previous month. The country’s producer price index fell 0.9 percent year on year, the 29th straight decline.

Ma Zihui, researcher at Huarong Securities in Beijing, told Reuters that the drop in the PPI was "not a good message".

"July macroeconomic data might come out worse than some people expected," he said.

BusinessDesk.co.nz

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