World Week Ahead Fed minutes, Yellen address

Monday 19th May 2014

Investors will eye the latest US Federal Reserve meeting minutes as well as a speech by Chair Janet Yellen for fresh clues to help justify Wall Street trading near record highs.

On Wednesday the Fed will release the minutes from its latest meeting, while Yellen is scheduled to deliver a commencement address to NYU graduates at Yankee Stadium.

Last Thursday Yellen acknowledged the support of small businesses in helping the US economic recovery.

"America has come a long way since the dark days of the financial crisis, and small businesses deserve a considerable share of the credit for the investment and hiring that have brought that progress," she said at a US Chamber of Commerce event in Washington. "Although we have come far, it is also true that we have further to go to achieve a healthy economy, and I am certain that small businesses will continue to play a critical role in reaching that objective."

Last Friday's report showing that US housing starts jumped a bigger-than-expected 13.2 percent to an annualised rate of 1.07 million in April, upward from an upwardly revised 947,000 in March, helped the mood on Wall Street. Even so, a separate report showed US consumer confidence posted a surprise drop this month. The Thomson Reuters/University of Michigan index of sentiment slid to 81.8 in May, down from 84.1 in April.

Friday's gains on Wall Street were positive, according to Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York. Earlier in the week both the Dow and the S&P 500 climbed to record highs, then slid.

For the week, the Dow Jones Industrial Average fell 0.55 percent, while the Standard & Poor's 500 index inched 0.03 percent lower, as Friday's gains helped mitigate declines. The Nasdaq Composite index rose 0.46 percent for the week.

"The market's held in, and I think technically there's a sense it didn't break down," Polcari told Reuters.

So far in 2014, the Dow has gained just 0.42 percent while the S&P 500 has added 2.4 percent. The Nasdaq, however, has lost 1.56 percent.

While Wall Street hit record highs, US Treasuries also enjoyed a strong week, pushing yields on thirty-year bonds 12 basis points lower to 3.35 percent.

"Everyone has been expecting higher rates, but they haven't come," Larry Milstein, managing director in New York of government-debt trading at RW Pressprich & Co, told Bloomberg News.

Several other US policy makers are speaking this week.

Today Dallas Fed President Richard Fisher and San Francisco Fed President John Williams will discuss the role of the Fed on a panel in Dallas; on Tuesday, Philadelphia Fed President Charles Plosser speaks on the economic outlook in Washington; while on Wednesday New York Fed Bank President William Dudley, Kansas City Fed President Esther George, and Minneapolis Fed President Narayana Kocherlakota are all scheduled to speak at separate events.

In terms of economic data, Thursday will offer reports on weekly jobless claims, the PMI manufacturing index, existing home sales, leading indicators, the Kansas City Fed manufacturing index. On Friday, there is the latest report on new home sales.

Hewlett-Packard, Gap, Tiffany, Vodafone and Target are among companies scheduled to release earnings in the coming days.

While some such as Wal-Mart reported earnings last week that failed to meet the mark, there were positive surprises too. Shares of JC Penney jumped on Friday, closing with gains of 16 percent, after the department-store chain reported a first-quarter loss that was smaller than analysts expected. Shares of Applied Materials and Autodesk also benefited from surpassing expectations, bolstering their respective shares by 8 percent.

In Europe, the Stoxx 600 added 0.1 percent last week. The UK's FTSE 100 rose 0.6 percent, while Germany's DAX gained 0.7 percent. Earlier in the week a report showed the euro-zone economy expanded less than expected in the first quarter, growing just 0.2 percent from the final quarter of 2013.

In the coming days, investors also will get reports on Germany's producer price index, on Tuesday; the euro-zone current account as well as consumer confidence, due Wednesday; eureo-zone PMI manufacturing and services data, on Thursday; and German first-quarter gross domestic product as well as IFO data.

And today, Germany's Bundesbank releases its monthly report, while on Wednesday the Bank of England will release minutes from its latest meeting.

BusinessDesk.co.nz

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