World Week Ahead: Fed minutes, US housing data

Monday 17th November 2014

Minutes from last month’s US Federal Reserve meeting, corporate earnings from Target and Best Buy, and reports on the American housing market will help set the tone for Wall Street which continues to edge higher.

On Wednesday, US Fed will release minutes from its October meeting when it announced the end of its monthly asset purchases, a key step towards the eventual increase in interest rates.

Speeches by Fed officials will be watched for clues on the timing of a rate increase, with bets shifting back and forth between the various quarters of 2015.

On Tuesday, Minneapolis Fed President Narayana Kocherlakota gives a talk in St Paul, Minnesota, while on Thursday Fed Governor Daniel Tarullo will speak in New York, and San Francisco Fed chief John Williams appears on a panel at a Bank of Korea conference in Seoul.

Investors are keen to see whether the real estate industry has awakened from its prolonged sleep. The housing market index is due Tuesday, followed by starts on Wednesday, and existing home sales on Thursday.

Other reports scheduled for release this week include the Empire State manufacturing survey and industrial production, due today; consumer price index, weekly jobless claims, preliminary PMI manufacturing index, Philadelphia Fed survey, leading indicators, due Thursday; and the Kansas City Fed manufacturing index, due Friday.

On Wall Street last week, the Dow Jones Industrial Average gained 0.35 percent, the Standard & Poor’s 500 Index advanced 0.39 percent, while the Nasdaq Composite Index climbed 1.21 percent.

The S&P ended the week at a record closing high, bringing its gain for 2014 to 12.3 percent. The Dow closed at a record on Thursday, and has added 8.6 percent since the start of the year.

"Most portfolio managers are lagging the indices and there are going to be some aggressive efforts to make up for performance in the next six weeks. Those that are under invested are going to want to be more invested," Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, told Reuters. "The market will either tread water or move higher from here to the end of the year" barring a huge drop in oil prices.

Meanwhile, Robert Pavlik, chief market strategist at Banyan Partners in New York, predicted that “we’re going to see a little pause.”

“People are looking for a holiday rally and may be asking if it’s happened already,” Pavlik told Bloomberg News. “We can’t continue to climb up this ladder forever.”

The US consumer certainly seems to have perked up, which bodes well for the all important holiday shopping season for retailers which kicks off with Black Friday on November 28.

On this past Friday, a Commerce Department report showed retail sales rose a better than expected 0.3 percent in October, following a 0.3 percent drop in September, as American consumers spent on eating out, clothing and sporting goods.

Separately, a gauge of consumer confidence, as measured by the Thomson Reuters/University of Michigan preliminary sentiment index, also increased more than expected, rising to 89.4 in November, the highest level in seven years.

Several US retailers are set to report their latest quarterly earnings in the coming days. They include Gap, Target, Best Buy, Lowe’s and Dollar Tree.

The recent decline in oil prices to four year low certainly has helped buoy the American consumer.

"Consumers are spending what they are saving at the gas pump," Camilla Sutton, a currency strategist at Scotiabank in Toronto, told Reuters.

There might be more good news ahead, for consumers, too.

“Supply-demand balances suggest that the price rout has yet to run its course,” the International Energy Agency said in its monthly market report on Friday, according to Bloomberg News. “Downward price pressures could build further in the first half of 2015. Pressure on OPEC to reduce production is building.”

In Europe, the Stoxx 600 Index eked out a 0.1 percent advance last week, while the FTSE 100 Index climbed 1.2 percent.

Today, European Central Bank President Mario Draghi is scheduled to give his quarterly testimony to the European Parliament in Brussels.

Also today, Japan is set to release its preliminary third quarter gross domestic product report. Economists surveyed by Bloomberg predict growth of 2.8 percent for the three months ended September 30 after shrinking at an annualised 7.1 percent in the previous quarter.

BusinessDesk.co.nz

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