World Week Ahead: Apple Watch, US retail sales

Monday 9th March 2015

Apple’s new watch, a report on US retail sales, and the European Central Bank’s new quantitative easing programme will take centre stage this week.

On Friday, a much better than expected US payrolls report fuelled expectations the US Federal Reserve will raise interest rates as early as June.

Employers added 295,000 jobs in February, while the unemployment rate dropped to 5.5 percent, the lowest in almost seven years and within the range of what the Fed considers full employment. To be sure, hourly earnings advanced less than expected.

“June would strike me as the leading candidate for liftoff,” Jeffrey Lacker, president of the Fed Bank of Richmond and a voting member of the Federal Open Market Committee this year, said in an interview on Sirius XM radio on Friday.

Fed officials scheduled to speak this week include Cleveland Fed President Loretta Mester and Dallas Fed President Richard Fisher, both today.

The Fed’s highly accommodative stance, historic low rates and aggressive asset purchases, has helped Wall Street soar, with both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index closing at records last week, while the Nasdaq also moved above 5,000 for the first time in more than 15 years.

“If you’re a believer that part of the reason the equity markets have done so well is driven largely by the Fed’s easy money policy, then your interpretation is that a rise in interest rates could slow down the equity markets,” Randy Frederick, managing director of trading and derivatives at Charles Schwab, told Bloomberg. “I don’t think this will end the bull market, I do think this could cause a correction.”

Over the past year, the Dow is up 11.1 percent, the S&P 500 has gained 12.6 per cent and the Nasdaq has advanced 15.1 per cent, even after taking into account Friday’s swoon.

On Friday, the Dow sank 1.5 percent, the S&P shed 1.4 percent, and the Nasdaq slid 1.1 percent. For the week, the Dow lost 1.5 percent, the S&P 500 dropped 1.6 percent and the Nasdaq retreated 0.7 percent.

Shares of Apple, up 70 percent over the past year, will be in focus today as it is expected to unveil its new Apple Watch, the first real new product since Steve Jobs’ death. On Friday, it was announced that Apple will be added to the Dow at the close of trading on March 18, replacing AT&T.

The key US report in the coming days will be February’s retail sales on Thursday. Consumer spending accounts for more than two thirds of the American economy.

Other economic data this week will arrive in the form of the NFIB small business optimism index and wholesale trade, due Tuesday; quarterly services survey, and Treasury budget, due Wednesday; weekly jobless claims, import and export prices, and business inventories, due Thursday; and the producer price index, and consumer sentiment, due Friday.

Europe’s Stoxx 600 Index, which has gained 15 percent so far in 2015, is set to rise another 14 percent this year, Jonathan Stubbs, the bank’s head of Europe and UK equity strategy, wrote in a note dated March 5, according to Bloomberg. Citigroup lifted its 2015 forecast for the Stoxx Europe 600 Index to 450 from 400. It closed at 394.18 on Friday.

The optimism about European stocks reflects the decision by the region’s central bank to expand asset purchases, including government debt, to the tune of 60 billion euros a month. This program starts today after months of anticipation.

Also there are signs that the euro zone’s economy is improving. On Friday, Germany reported that industrial output advanced more than expected in January.

Germany’s DAX closed at a fresh record high on Friday, lifting its advance for 2015 so far to 17.8 percent.

The UK’s FTSE 100 Index shed 0.5 percent for the week, even as it closed at a record high on Thursday.

BusinessDesk.co.nz

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