World Week Ahead: Can US earnings save the day?

Monday 13th October 2014

Investors will eye quarterly earnings from JPMorgan Chase, Citigroup, Intel and eBay in the coming days to gauge whether there’s a reason for optimism about the outlook after Wall Street declined for a third straight week amid concern about global growth.

Other companies reporting in the coming days include Wells Fargo, Bank of America, Johnson & Johnson, Netflix, and Google as the first real wave of third-quarter results are released. Today, US bond markets are closed for the Columbus Day holiday.

"The earnings reports from the US should help put a bottom in the market and lead to some regained strength," Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management, told Reuters. “We think we remain in good shape.”

Not everyone agrees. Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida, believes equities might extend their slide.

"We're still in a bull market, but in the near term things are a little bit dicey, and I don't think the decline is over with yet,” Saut told Reuters.

Last week on Wall Street, the Dow Jones Industrial Average slumped 2.7 percent, while the Standard & Poor’s 500 Index sank 3.1 percent and the Nasdaq Composite Index plunged 4.5 percent as the International Monetary Fund downgraded its global outlook and disappointing data from Germany raised concern the euro-zone’s largest economy is headed for a recession.

"The global recovery continues, but is uneven and weaker-than-expected, and downside risks have increased," the International Monetary and Financial Committee said in a statement on Saturday. "A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high."

Indeed, Federal Reserve Vice Chairman Stanley Fischer warned the US central bank might not raise interest rates as fast as expected if economic growth overseas falls short of expectations.

"If foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise," Fischer said on Saturday in Washington.

"The Federal Reserve and other central banks are going to great lengths to communicate policy intentions and strategies clearly. Given this, markets should not be greatly surprised by either the timing or the pace of normalisation," according to Fischer.

Investors will also keep a watch on several US policy makers for further potential clues about the timing of an increase in interest rates. On Friday, Fed Chair Janet Yellen speaks at the Fed Bank of Boston Economic Conference.

First off the mark though, Chicago Fed chief Charles Evans speaks in Indianapolis today.

On Thursday, four regional policy makers will be giving speeches at different venues: Philadelphia Fed boss Charles Plosser, Kansas City Fed President Esther George, St Louis Fed chief James Bullard and Minneapolis Fed President Narayana Kocherlakota.

The latest data on the US economy, the world’s second largest after China’s surpassed it officially last week on a purchasing power basis, will arrive in the form of the NFIB small business optimism index, due Tuesday, and the producer price index, retail sales, the Empire State manufacturing survey, business inventories, and the Beige Book, on Wednesday.

Reports on weekly jobless claims, industrial production, the Philadelphia Fed survey, and the housing market index are scheduled for release on Thursday, followed by housing starts and the University of Michigan’s consumer sentiment on Friday.

In Europe, the Stoxx 600 slumped 4.1 percent last week amid increased concern about the region’s economy.

“Reality is hitting home for investors. Weak domestic economic growth in Europe will probably be long lasting,” Gerard Lane, a strategist at Shore Capital Group in Liverpool, England, told Bloomberg News. “The [European Central Bank] doesn’t know what to do. And if they knew what to do, Germany wouldn’t let them do it.”

Data released in the coming days include ZEW economic sentiment for both the euro zone and Germany, as well as euro-zone industrial production, due today; Germany’s consumer price index, due Wednesday; and euro-zone CPI and trade balance, due Thursday.

BusinessDesk.co.nz

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