World Week Ahead: US powers ahead

Monday 20th July 2015

Wall Street is set to sustain recent gains after the Nasdaq closed at a record high on Friday, amid better than expected earnings from companies including Google, and US Federal Reserve chair Janet Yellen’s comments that rate increases will be moderate.

IBM, Microsoft, Apple, Yahoo and Morgan Stanley are among the companies scheduled to release their latest earnings in the coming days.

“We’re now watching earnings come out, with the background of what’s going on internationally,” Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, told Bloomberg. “There’s nothing right now that looks like there’s an impediment to pushing stocks higher or causing a sell-off.”

On Friday, shares of Google soared 16 percent after the company reported better than expected earnings.

“People should take away that Google is a stronger and healthier company than what the Street had previously understood,” Colin Sebastian, an analyst at Robert W Baird & Co, told Bloomberg. “Both Google and Facebook are benefiting from these secular growth trends, which is really moving advertising dollars online from offline. There’s still plenty of growth left for both companies.”

On Wall Street last week, the Dow Jones Industrial Average climbed 1.8 percent, the Standard & Poor’s 500 Index gained 2.4 percent, while the Nasdaq Composite Index rallied 4.3 percent to close at a record high.

Investors "liked the focus on expense control and openness towards possible dividends and share buybacks," Giri Cherukuri, portfolio manager at OakBrook Investments, which owns shares in Google, told Reuters.

Google's comments on strength at Youtube and, in particular, mobile viewing, likely translated into positive sentiment for Facebook as well, Cherukuri added.

Shares of Facebook rose 4.5 percent to a record on Friday.

In terms of economic data, this week brings the latest reports on the US real estate industry in the form of the FHFA house price index and existing home sales on Wednesday, followed by new home sales on Friday.

There's also weekly jobless claims, the Chicago Fed national activity index, leading indicators, and the Kansas City Fed manufacturing index, due Thursday; followed by the Performance of Manufacturing Index on Friday.

The US dollar, which gained 3 percent against the euro last week, may also extend its strength as Yellen continues to say that she expects the Fed to lift rates this year. In contrast, most other global central banks are expected to hold rates at current levels or cut them further as the Bank of Canada did last Wednesday.

“There’s more upside to the dollar,” Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange in Washington, told Bloomberg. “There may be a bigger reaction when the rate hike actually comes than what the market is thinking.”

The Federal Open Market Committee’s next two-day meeting starts July 28.

Last week, Europe’s Stoxx 600 Index advanced 4.3 percent after Greece and its international creditors reached agreement on a new bailout that will keep the country afloat and in the eurozone. The Greek parliament approved the deal, as did Germany’s.

Today, Greek banks are set to reopen, though capital controls will remain in place. Depositors will be able to withdraw up to 420 euros in total in a week instead of the current 60 euros a day limit. The Athens Stock Exchange will remain closed at least another day.

Economic data due this week include reports on German producer prices and eurozone current account today, eurozone consumer confidence on Thursday, and eurozone manufacturing and services performance indices on Friday.

On Wednesday the Bank of England will release minutes from its latest policy meeting.

BusinessDesk.co.nz

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