World Week Ahead Weak US payrolls lift focus on earnings, FOMC minutes

Monday 8th April 2013

A fresh round of earnings will set the tone for Wall Street after US stocks posted their largest weekly slide of 2013 on mounting evidence the recovery has slowed.

A much weaker-than-expected monthly jobs report on Friday capped a week of disappointing data on the American economy which has raised concern about corporate earnings with Alcoa, JP Morgan Chase and Wells Fargo among the companies reporting in the next few days.

Standard & Poor's 500 Index earnings are expected to have risen just 1.5 percent in the first quarter from a year ago, according to Thomson Reuters data, down from a 4.3 percent forecast in January.

Analysts polled by Bloomberg are even less optimistic. They forecast that earnings at S&P 500 companies will decrease 1.8 percent in the first three months of the year, which would be the first year-over-year drop in profit since 2009.

"At this point earnings are going to be perhaps more important than revenues only because we know Q1 was only a so-so quarter for the economy," Nicholas Colas, chief market strategist at the ConvergEx Group in New York, told Reuters.

"It's not going to be a surprise if revenues are a little bit light. Where we really have to make sure the numbers work is at the earnings level."

Wall Street dropped on Friday after the Labor Department said payrolls increased by 88,000 workers in March. Forecasts had called for 200,000 new jobs. While the unemployment rate edged down to 7.6 percent from 7.7 percent, the decrease was attributed to people giving up on finding work.

To be sure, the upside to all these signs of weakness is that they suggest the US Federal Reserve will stick to its stimulus measures to help bolster growth. As a result, the greenback suffered a 1.4 percent slide against the euro last week.

"It obviously means that the Fed will remain on vigil with regards to the highly accommodative monetary policy," Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott, told Bloomberg News.

Investors will comb the minutes from the latest FOMC meeting due to be released on Wednesday for any fresh clues from policy makers.

Reports due in the coming days include the NFIB small business optimism index, due Tuesday, import and export prices, due Thursday, as well as the producer price index and retail sales, both due Friday.

Last week, the Dow Jones Industrial Average retreated 0.1 percent, the Standard & Poor's 500 Index shed 1 percent, while the Nasdaq Composite Index dropped 1.9 percent. Year to date, stocks are still way ahead with the Dow up 11.2 percent and the S&P 500 up 8.9 percent.

In the Easter holiday-shortened four-day week, Europe's benchmark Stoxx 600 Index gave up 2.3 percent amid signs the euro-zone's recovery might take longer than expected.

On the weekend, European Union Economic and Monetary Affairs Commissioner Olli Rehn warned that large bank deposits are at risk if a bank fails under proposed EU law.

"Cyprus was a special case ... but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down," Rehn told Finland's national broadcaster YLE.

"But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 100,000 euros is sacred, deposits smaller than that are always safe."

BusinessDesk.co.nz

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