World Week Ahead: Earnings optimism increases

Monday 24th October 2016

As the latest corporate earnings season gathers steam, with Apple and Alphabet among the US companies reporting this week, so is optimism about the outlook.

On Friday shares of Microsoft rallied 4.2 percent to close at a record high after it posted better-than-expected earnings, while shares of McDonald's rose 3 percent after its results also exceeded estimates.

"Earnings, frankly have started out little better than I thought they would, and a little better than the consensus thought they would,” Phil Orlando, chief equity market strategist at Federated Investors, in New York, told Reuters. “You had a couple of good companies like Microsoft, which is skewing things positively.”

Last week, the Dow Jones Industrial Average eked out a 0.04 percent gain, while the Standard & Poor’s 500 Index rose 0.4 percent and the Nasdaq Composite Index climbed 0.8 percent.

Other US companies scheduled to report their latest results this week include Exxon Mobil and Chevron.

“This is going to be an earnings reporting season that is going to be moving us back toward positive earnings growth,” Bill Northey, chief investment officer at US Bank’s Private Client Reserve in Helena, Montana, told Bloomberg.

“But against that backdrop,” Northey added, “we’ve seen a pretty strong jump in the dollar. We’ll have to keep an eye on how strong the US dollar becomes and how US equity markets perform.”

Indeed, the US dollar has benefited from bets the Federal Reserve will raise interest rates at its December meeting.

The last Fed officials scheduled to speak before the Federal Open Market Committee's next two-policy meeting starting on November 1 include New York Fed President William Dudley, St Louis Fed's James Bullard, Chicago Fed's Charles Evans, and Fed Governor Jerome Powell today, and Atlanta Fed's Dennis Lockhart on Tuesday.

The latest reports on the US housing industry will show up in the form of the FHFA and the S&P Corelogic Case-Shiller house price indices on Tuesday, new home sales on Wednesday, and pending home sales index on Thursday.

Other data slated for release include the Chicago Fed national activity index, and PMI manufacturing index, due today; consumer confidence, and Richmond Fed manufacturing index, due Tuesday; international trade in goods, and PMI services, due Wednesday; durable goods orders, weekly jobless claims, and Kansas City Fed manufacturing index, due Thursday; the first estimate for third-quarter gross domestic product, as well as the employment cost index, and consumer sentiment, due Friday.

Meanwhile, AT&T agreed to buy TimeWarner for more than US$80 billion, according to the Wall Street Journal on Saturday. AT&T shares slid 3 percent last Friday, while TimeWarner jumped 7.8 percent.

“It is a knockout bid, which is probably what AT&T intended,” Jonathan Chaplin, an analyst at New Street Research, told Bloomberg. “I would be surprised if anyone else could top AT&T’s bid.”

In Europe, the Stoxx 600 Index gained 1.3 percent last week.

Here, the slew of companies reporting their latest earnings this week include Deutsche Bank and Volkswagen. Analysts have tempered estimates for 2016 profit declines for the first time since early September, now forecasting a fall of 4.3 percent for the period, according to Bloomberg.

Also, the UK will release its first estimate for third-quarter GDP, the first quarter since its Brexit vote.

BusinessDesk.co.nz

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