World Week Ahead US retail sales, Europe, Japan GDP

Monday 13th May 2013

The resiliency of Wall Street's record run so far this calendar year has left investors comfortable that there is room to extend the gains.

On Friday, the Standard & Poor's 500 Index closed at a record 1,633.70, while the Dow Jones Industrial Average ended at a record 15,118.49. The Dow rose 1 percent, while the S&P 500 increased 1.2 percent last week.

"We still see reasonable equity valuations," Brian Peery, who helps oversee about US$3.5 billion for Novato, California-based Hennessy Funds, told Bloomberg News. "There is probably a pretty good amount being left in the market. People are waiting for a potential dip to increase their equity exposure."

Others market watchers, however, say sustaining the rally might prove challenging.

"The main question is whether the bulls can maintain the 1,600 level on the S&P 500 for another week," Ari Wald, technical analyst at New York-based PrinceRidge Group, told Reuters. "If it does, the next level is 1,660. But with markets already this high, it won't be easy."

Some observers are downright astonished.

Marc Faber, author of The Gloom Boom and Doom Report, told The Globe and Mail newspaper: "I have never seen such a disconnect between the asset market and the economic reality."

Testing that correlation this week will be report cards on first-quarter economic performance in Europe and Japan.

In the US, a raft of data lies ahead. Monday's retail sales will show whether the American consumer feels as confident as the Wall Street investor.

Other clues on the state of the world's largest economy will come from the producer price index and industrial production, due Wednesday, the consumer price index and the Philadelphia Fed survey, due Thursday, and leading indicators, due Friday.

The housing market index due on Wednesday and housing starts on Thursday should help affirm that the real estate sector is gathering recovery momentum.

Macy's, Wal-Mart, and Cisco are among US companies reporting earnings in the coming days.

The latest round of American corporate earnings has proven better than anticipated, though expectations were modest. As 89 percent of the S&P 500 companies have reported earnings so far, 66.7 percent have exceeded profit expectations, while 46.4 percent have surpassed revenue expectations, according to Reuters.

In Europe, the Stoxx 600 Index added 1.3 percent in the past five days. France's CAC 40 advanced 1 percent, the UK's FTSE 100 climbed 1.6 percent, and Germany's DAX gained 1.9 percent.

Investors will closely watch the latest GDP data for Germany on Wednesday. Last week brought better-than-expected data on output and industrial orders in Europe's engine economy, bolstering hopes its recovery from a contraction in the final quarter of 2012 is on track.

The DAX closed at a record high on Friday.

Japan's GDP data is scheduled for release on Wednesday. Government and central bank efforts to revive the nation's growth with record stimulus measures helped send the yen as low as 101.98 per US dollar, the lowest since October 2008, on Friday.

The yen has weakened 15 percent against the greenback this year and 13 percent versus the euro, according to Bloomberg. And there seems good reason to bet the slide will continue.

Credit Suisse expects first-quarter real GDP growth will be at 2.6 percent quarter on quarter annualised, according to a report it published last week.

BusinessDesk.co.nz

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