World Week Ahead: US consumer in focus

Monday 8th August 2016

With Wall Street at record highs following Friday’s stronger-than-expected US jobs data, investors will eye the latest earnings from companies including Macy’s and Nordstrom as well as a report on retail sales.

A Labor Department report last Friday showed US payrolls rose by 255,000 last month, underpinning optimism about the outlook for the nation’s economy. That also raised expectations the Federal Reserve might raise interest rates this year, strengthening the US dollar.

Traders now see about a 47 percent chance of a US rate hike by December, up from about 35 percent at the end of last month, according to Bloomberg.

“I don’t think it brings the Fed back to the table for September, but there are more people entering the workforce which is healthy,” Darrell Cronk, president of Wells Fargo Investment Institute in New York, told Bloomberg. “The story with these numbers is higher equity prices, higher yield and higher dollar.”

Last week, the Dow Jones Industrial Average gained 0.6 percent, the Standard & Poor’s 500 Index added 0.4 percent, while the Nasdaq Composite Index rallied 1.1 percent. Both the S&P 500 and the Nasdaq closed at record highs on Friday.

This week the latest clues on the US economy will arrive in the form of the labour market conditions index, due today; NFIB small business optimism index, productivity and costs, and wholesale trade, due Tuesday; weekly jobless claims, and import and export prices, due Thursday; as well as retail sales, producer price index, business inventories, and consumer sentiment, due Friday.

"It continues to be a system in which you need the consumer to demonstrate some strength, but not too much strength because if it’s too much strength then now [Fed Chair] Janet Yellen gets into the picture," Jeff Weniger, senior strategist at BMO Wealth Management in Chicago, told Reuters.

Other US companies scheduled to report their latest quarterly earnings in the coming days include Walt Disney, Shake Shack, and Valeant Pharmaceuticals.

So far the latest round of quarterly earnings has proven better than expected, though expectations were low. With about 85 percent of the overall S&P 500 already reported, second-quarter earnings are expected to have fallen 2.6 percent, according to Reuters.

In Europe, the Stoxx 600 Index rose 1.1 percent on Friday. That narrowed its decline for the week to 0.2 percent.

The Bank of England last week cut its key interest rate for the first time since 2009, lowering it to a record low 0.25 percent, as part of a monetary stimulus package designed to help absorb the economic impact of the UK’s decision to leave the European Union.

"With the UK potentially on the brink of recession, the resilience in economic sentiment indicators on the other side of the English Channel in July is perhaps surprising," Christian Schulz at Citi told Reuters.

Investors will watch this week’s reports including on German industrial production and euro-zone Sentix investor confidence, due today; German trade balance as well as UK industrial and manufacturing production, due Tuesday; German consumer price index and gross domestic product, and euro-zone GDP and industrial production, due Friday.

(BusinessDesk)

BusinessDesk.co.nz

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