World Week Ahead: US economic focus

Monday 26th March 2012

Investors appear to be waiting for a slew of fresh clues this week on the state of the US economy to help renew, and extend, Wall Street's 2012 rally.

The S&P 500, which dipped 0.5 percent last week, is still up 2.3 percent for March and has risen for four straight months. It is poised for its longest string of monthly gains since September 2009, according to Bloomberg News.

"The bottom line is: The economy is improving and while inflation is trending higher, there is no threat of corporate profits disintegrating," Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told Reuters. "I am looking for a rally."

Data due this week should underpin optimism that the world's largest economy is in increasingly better shape.

Pending home sales are due on Monday, consumer confidence on Tuesday and durable goods orders on Wednesday.

There are will be final readings on the latest gross domestic product data on Thursday, followed by Friday's data on consumer sentiment. Economists polled by Bloomberg are expecting that orders for long-lasting factory goods rose 3 percent in February after dropping 3.7 percent in January, and that personal spending increased 0.6 percent last month, boosted in part by stronger auto sales.

“It’s employment that’s really driving the bus for spending growth right now,” Russell Price, a senior economist at Ameriprise Financial in Detroit, told Bloomberg. “As our economy expands, it’s going to allow manufacturing to build right along with it.”

Last week, concern about weakness among Chinese and European manufacturers gave investors cause for pause. In addition to the S&P 500 easing, the Dow Jones Industrial Average shed 1.2 percent.

In Europe, the Stoxx 600 Index dropped 2.5 percent in the past five days. In Europe, reports this week include preliminary inflation data from Germany on Wednesday and flash euro zone CPI figures on Friday. Investors also will closely watch Spain as the debt-laden country is set to detail its budget plans on Friday.

Last week, yields on Spain's 10-year bonds increased 19 basis points to 5.39 percent, reflecting concern that the government is not so committed to meeting budget deficit targets.

Ahead of the budget, Spanish Prime Minister Mariano Rajoy will be tested with his first general strike on March 29 as union workers seek to push back against reforms to make it easier to fire employees.

Italy's Prime Minister Mario Monti says it wouldn't take much to recreate the risks of contagion, pointing to Spain's struggle to control its finances, Bloomberg reported. Also on this week's European agenda is a meeting of European Union finance ministers in Copenhagen, Denmark on Friday where they are expected to decide on plans to shore up the region's 500 billion euro rescue fund.

EU Economic and Monetary Affairs Commissioner Olli Rehn on Sunday said he trusts that euro-area finance ministers “will take a convincing decision on the reinforcement of the firewalls” this week.

“The key thing now is to conclude the comprehensive crisis response,” Rehn told reporters in Saariselkae, Finland, according to Bloomberg.

(BusinessDesk)

BusinessDesk.co.nz

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