World Week Ahead: Battle for sentiment

Monday 15th February 2016

A slew of US Federal Reserve speakers and minutes from the latest Fed policy meeting will jostle for attention in the coming days after Friday’s recovery rally in some of the most-battered stocks this year.

“It's too early to say whether this is the beginning of a more sustained recovery, but it's encouraging and it shows there is still interest in stocks despite the rocky times we've experienced so far this calendar year,” John Carey, portfolio manager at Pioneer Investment Management in Boston, told Reuters.

Last week Fed Chair Janet Yellen hit the right note with investors in her semi-annual testimony to Congress, offering both confidence in the strength of the US economy and yet flexibility if needed when it comes to the timing of raising interest rates.

Minutes from the January Federal Open Market Committee meeting might offer more hope for what lies ahead when they are released on Wednesday.

Friday’s report on consumer spending, a key driver for the US economy, underpinned other recent optimistic data including the jobs market.

The Commerce Department said US retail sales rose 0.2 percent in January, following a revised 0.2 percent increase in December that was previously reported as a fall.

“The markets may have decided that the US is headed for recession, but obviously no one told US consumers,” Paul Ashworth, chief economist at Capital Economics in Toronto, told Reuters.

Fed officials speaking in the coming days include Philadelphia Fed President Patrick Harker, Minneapolis Fed boss Neel Kashkari in Washington, and Boston Fed chief Eric Rosengren, on Tuesday; St Louis Fed's James Bullard in St Louis on Wednesday; San Francisco Fed’s John Williams on Thursday; and Cleveland Fed's Loretta Mester on Friday.

First off the central bank bench, European Central Bank boss Mario Draghi is set to speak to European lawmakers in Brussels today.

The latest US economic data will arrive in the form of the Empire State manufacturing survey, and housing market index, due Tuesday, followed by housing starts, the producer price index, industrial production, and Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, and leading indicators, due Thursday; and the consumer price index, due Friday.

Last week ended with a rebound in equities, notably in bank stocks on both sides of the Atlantic. Supporting the mood was a surge in the price of oil amid fresh reports that OPEC might be edging closer to a cut in production.

Shares of JPMorgan Chase soared, closing 8 percent higher, after chief executive Jamie Dimon said he bought more than US$25 million of the bank’s stock. Other bank shares rose in tandem.

In Europe, shares of Commerzbank soared 18 percent on Friday after the German lender reported that it returned to profit in the fourth quarter. Shares of Deutsche Bank jumped more than 12 percent after the company said it will buy back more than US$5 billion of its bonds.

On Friday, the Dow Jones Industrial Average rallied 2 percent, as did the Standard & Poor’s 500 Index, while the Nasdaq Composite Index climbed 1.7 percent.

For the week, the Dow dropped 1.5 percent, while the S&P 500 fell 0.8 percent, and the Nasdaq declined 0.6 percent.

To some, the bearish mood in recent weeks bodes well for equities.

“While this might seem counter-intuitive, high amounts of negative sentiment versus positive sentiment often are a prelude to a move higher in stocks,” Bill Stone, chief investment strategist at PNC Wealth Management in Philadelphia, wrote in a note to clients, Reuters reported.

Today, US markets are closed for the Presidents' Day holiday.

In Europe, Friday’s 2.9 percent rebound in the Stoxx 600 Index eased its weekly slide to 4.1 percent. The Stoxx 600 closed 25 percent below its April record, taking its valuation to 13.9 times estimated earnings from more than 17 at its peak, according to Bloomberg.

BusinessDesk.co.nz

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