World Week Ahead Equities look to extend advance

Monday 6th August 2012

Signs that European officials are making progress, albeit agonisingly slowly for investors, and signs that the US economy has some forward momentum, albeit in a low gear, may help propel global equities higher this week.

Last week was marked by disappointment over the lack of immediate stimulus measures by central banks in the US and Europe when they wrapped up their latest respective policy meetings on Wednesday and Thursday. Investors were expecting concrete, detailed plans.

However, sentiment shifted on Friday on bets that the European Central Bank is serious about buying EU bonds and that optimism was bolstered by better-than-expected US jobs data which helped Wall Street close on a positive note. American employers added 163,000 jobs last month, after a revised 64,000 June gain, according to Labor Department data. The jobless rate edged higher to 8.3 percent.

In the past five days, the Dow Jones Industrial Average gained 0.2 percent, the Standard & Poor's 500 Index rose 0.4 percent and the Nasdaq Composite Index advanced 0.3 percent. It was the fourth week in which US stocks have risen. On Friday, the Dow jumped 1.7 percent, the S&P 500 added 1.9 per cent and the Nasdaq advanced 2 per cent.

Investors are still expecting help from US policy makers, and will eye two speeches by Fed Chairman Ben Bernanke on Monday and on Tuesday for potential fresh clues as to timing and the depth of help that can be expected.

There is a 63 percent chance the Fed will for the third time expand its balance sheet via large-scale bond purchases, according to the median of forecasts from a Reuters poll of 17 primary dealers conducted after the government released its July jobs report on Friday.

If the Fed does act, 13 said they thought it would do so at its next policy meeting in September, up from eight in a July 6 Reuters poll of 16 dealers. There are 21 US primary dealers, large financial institutions that do business directly with the Fed.

Investors will eye the latest US economic data including the productivity of American workers, due on Wednesday, as well as weekly jobless claims and international trade, both due on Thursday.

The trade deficit probably narrowed to US$47.5 billion in June, the smallest in four months, from US$48.7 billion in May, according to a Bloomberg survey

Also in focus are Walt Disney, Chesapeake Energy, Macy's and JC Penney which are among the big US companies reporting quarterly earnings in coming days. About 73 percent of S&P 500 companies which reported quarterly results have beaten estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.

In Europe, the Stoxx 600 Index climbed 2.2 percent for the week, the ninth straight weekly gain.

Germany is auctioning 4 billion euros of 10-year bonds on Wednesday. With the ECB signalling plans to buy short-term bonds next month, pressure has eased in that area of the curve for both Spain and Italy. Spanish two-year note yields dropped 135 basis points to 3.96 percent on Friday. Its 10-year yield fell back below the 7-percent mark too.

There was, for once, some good news coming from Athens after international officials met with Greece's finance minister for a fiscal update. "The discussions on the implementation of the program were productive and there was an overall agreement on the need to strengthen policy efforts to achieve its objectives," according to a joint statement by the European Commission, European Central Bank and International Monetary Fund on Sunday.

Inspectors from the country's creditors will return to Athens in early September to continue the talks, according to the statement.

Meanwhile, Italian Prime Minister Mario Monti said again that the country isn't looking for and doesn't need financial help from Germany; it needs "moral support."

"I'll stay in office if all goes according to plan until April 2013, and I hope that I can help rescue Italy from financial ruin with moral support from some European friends, especially Germany," Monti told Der Spiegel in an interview published on Sunday. "But I say quite clearly: moral support, not financial," he said. "I emphasise: not with financial help. But they should cut some slack to those countries that are following the European guidelines precisely."

BusinessDesk.co.nz

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