World Week Ahead Fed debate to dominate

Monday 24th June 2013

Investors will focus on a slew of US economic data and speeches by Federal Reserve officials in the coming days, as nerves remain frayed by Ben Bernanke's signal that the American central bank might pull back its stimulus sooner than expected.

Wall Street calmed down by Friday, closing higher for the day, following losses the previous two days after Bernanke on June 19 said policy makers may start tapering their bond-buying program this year and end it in mid-2014.

Still, Friday's recovery wasn't enough to make up for the declines earlier in the week. In the past five days, the Dow Jones Industrial Average shed 1.8 percent, while the Standard & Poor's 500 Index dropped 2.1 percent and the Nasdaq Composite Index fell 1.9 percent.

European stocks also took a beating. The Stoxx 600 Index sank 3.7 percent last week, sliding for the fifth week in a row. National benchmark indexes in London, Paris and Frankfurt dropped too, slumping 3.1 percent, 3.9 percent and 4.2 percent respectively last week.

Treasuries were not safe from the carnage either. Yields on the 10-year benchmark government bond climbed 40 basis points to 2.53 percent in the past five days, according to Bloomberg.

Some remain optimistic about US equities. The S&P 500 is still up 12.8 percent so far this year.

"I still think you're in a bull market," Laszlo Birinyi, president of Birinyi Associates, told Bloomberg.

Others are not so sure.

"It is too early to tell if the market reaction to the Fed is just noise or the beginning of a greater sell-off in US equities," Mike Tosaw, portfolio manager at RCM Wealth Advisors, an investment advisory firm in Chicago, told Reuters.

"Over the course of the last month, we have been taking money off the table in the stock market and keeping the cash for the time being," Tosaw said. "Early [this] week, we plan to evaluate if this is a buying opportunity in stocks or if we need to run for the hills."

A slew of US economic reports scheduled for release in the coming days might help.

The list includes the Chicago Fed national activity index and the Dallas Fed manufacturing survey, both due Monday, durable goods orders, consumer confidence and the Richmond Fed manufacturing index, due Tuesday, personal income and outlays as well as the Kansas City Fed manufacturing index, due Thursday.

There are also several reports on the real estate market with the FHFA house price index, S&P Case-Shiller home price indexes as well as new home sales, all due on Tuesday, and the pending home sales index, due Thursday.

The coming days also will offer the opportunity to hear directly from of the Fed's top policymakers.

Dallas Fed President Richard Fisher is speaking in London on Monday. Minneapolis Fed President Narayana Kocherlakota speaks to the Society for Economic Dynamics in Seoul on Wednesday. The next day Atlanta Fed President Dennis Lockhart will give a speech on the economic outlook to the Kiwanis Club in Marietta, Georgia.

On Friday Richmond Fed President Jeffrey Lacker speaks on the economic outlook in West Virginia, while Fed Governor Jeremy Stein will talk about monetary policy to the Council on Foreign Relations in New York.

Also on Friday, Cleveland Fed President Sandra Pianalto will speak about labour trends and monetary policy in Wheeling, West Virginia, while San Francisco Fed President John Williams will give a speech to the Sonoma Economic Conference in Rohnert Park, California.

Last Friday, the St Louis Fed released a statement to explain why its president, James Bullard, dissented at last week's Fed meeting in Washington; he felt the decision to talk of a timetable for tapering was premature and that the committee should have waited for stronger data and higher inflation.

The US is set to auction US$99 billion of bonds in the coming days, after Treasuries took a battering last week.

"The market is adjusting to the new reality," Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA, told Bloomberg. "People have been hiding in bond funds. Bond funds have been piggy-backing off the Fed. The adjustment process may take us a little further than you would think."

Meanwhile, investors will eye reports on Germany, the euro-zone's largest economy, in the coming days. They include the nation's IFO data, due Monday, unemployment, due Thursday, as well as retail sales and the consumer price index, both due on Friday.

The latest euro-zone confidence reports are due Thursday.

BusinessDesk.co.nz

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