World Week Ahead Data key to sentiment

Monday 24th March 2014

Wall Street has regained positive momentum amid signs of a brighter outlook for the US economy and Russian President Vladimir Putin's reassurances he will not seek to claim more of Ukraine's territory.

Federal Reserve Chairman Janet Yellen last week surprised markets with her upbeat assessment for the world's largest economy, including suggestions that interest rates might rise as soon as the first half of 2015. Equity investors were heartened.

Last week, the Dow Jones Industrial Average gained 1.5 percent, the Standard & Poor's 500 index rose 1.4 percent and the Nasdaq Composite index added 0.7 percent. All three benchmarks closed down on Friday. So far in 2014, the Dow is down 1.1 percent, the S&P has gained 1.5 percent, while the Nasdaq has risen 2.7 percent.

However, shorter-dated fixed-income securities began pricing in those potential climbs in borrowing costs. Yields on the US government two-year note climbed eight basis points to 0.42 percent last week.

"Even though some of the recent data may not be consistent with rates rising early next year or even later this year, the market is starting to price in that possibility following the Fed's decision and comments," Alessandro Giansanti, a senior rates strategist at ING Bank in Amsterdam, told Bloomberg News.

Investors will be listening attentively to the Fed officials who will take to the stage in the coming days. Today, Fed Governor Jeremy Stein will speak at a Fed conference in Washington. On Tuesday, Atlanta Fed President Dennis Lockhart will talk in Atlanta, while Philadelphia Fed President Charles Plosser will speak in New York.

On Wednesday, St Louis Fed President James Bullard will discuss unconventional monetary policy as part of a panel in Hong Kong. The next day, Cleveland Fed President Sandra Pianalto is scheduled to talk in Dayton, Ohio, while Chicago Fed President Charles Evans will speak in Hong Kong. On Friday, Kansas City Fed President Esther George talks in Kansas City.

Meanwhile, last week also provided evidence in economic data that the US is emerging from a colder-than-usual winter. Investors are hopeful the trend might continue in the data scheduled to be released this week.

"Hopefully some of the data is beginning to clear itself from some of the weather impacts, and we may get some better readings on how things are going," Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors, told Reuters.

Tuesday will bring three reports about the US housing market: the FHFA house price index, S&P Case Shiller home price index, as well as new home sales.

Other clues will come today in the form of the Chicago Fed national activity index and the PMI manufacturing index; consumer confidence and the Richmond Fed manufacturing index, on Tuesday; durable goods orders and the PMI services index, on Wednesday; GDP, weekly jobless claims, and the Kansas City Fed manufacturing index, on Thursday; and personal income and outlays on Friday.

Household spending in February increased 0.3 percent in February after a 0.4 percent gain the prior month, according to the median forecast in a Bloomberg survey of economists ahead of the March 28 figures.

In Europe, the Stoxx 600 climbed 1.8 percent last week. The UK's FTSE 100 advanced 0.4 percent, France's CAC 40 rose 2.8 percent, while Germany's DAX jumped 3.2 percent.

Here reports will bring the latest data on euro-zone manufacturing today; Germany's Ifo business climate index, on Tuesday; German consumer sentiment, on Wednesday; and a range of euro-zone confidence data on Friday.

Investors will also eye manufacturing data from China. The preliminary reading for the Purchasing Managers Index released by HSBC Holdings and Markit Economics is expected to indicate contraction for a third straight month in March.

As for Putin, the jury is still out on his next move despite what he said last week. NATO and US officials are signalling fresh concerns about the exercises involving tens of thousands of Russian soldiers on Ukraine's eastern border.

BusinessDesk.co.nz

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