World Week Ahead: Fed asserts itself

Monday 28th September 2015

The coming week is filled with speeches by US Federal Reserve policy makers including Chair Janet Yellen, on Wednesday, as well as a slew of economic data including the government's monthly jobs report.

Wall Street rebounded on Friday as Yellen signalled after the market’s close on Thursday that the Fed remains on track to lift rates this year, reassuring investors about the outlook for the economy after the Fed held its target federal funds rate at zero to 0.25 percent earlier this month.

“Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter,” Yellen said on Thursday in Amherst, Massachusetts.

On Friday, the Dow Jones Industrial Average gained 0.7 percent. The Standard & Poor’s 500 Index slipped 0.05 percent, while the Nasdaq Composite declined 1 percent. Selling in biotechnology shares, one of the best bets in the market’s bull run, offset Yellen’s assurances on the economy.

In Europe, the Stoxx 600 Index rallied to a 2.8 percent gain from the previous close, spurred by Yellen’s optimism.

"Yellen's speech gave a little bit of clarity to the markets," Robert Pavlik, chief market strategist at Boston Private Wealth in Palm Beach Gardens, Florida, told Reuters. "That put the market in a slightly better mindset. It understands what the Fed is going to be doing because the last FOMC meeting had left people scratching their heads.”

This week, Yellen is scheduled to deliver opening remarks to the St Louis Fed community banking conference on Wednesday.

First, Chicago Fed President Charles Evans and San Francisco Fed President John Williams will speak today, followed by Fed Governor Lael Brainard on Wednesday, as well as Boston Fed President Eric Rosengren, Minneapolis Fed President Narayana Kocherlakota, Cleveland Fed President Loretta Mester, Fed Vice Chair Stanley Fischer, and St Louis Fed President James Bullard on Friday.

“Markets prefer clarity, even if it means a rate rise,” Tony Hann, a London-based money manager at Blackfriars Asset Management, told Bloomberg. “Rates will still be extremely accommodative. These comments are being seen as reassuring in as much as Yellen seems to be implying that the tribulations elsewhere in the world will not derail the US.”

This week also offers key reports on the US jobs market, with the ADP employment report on Wednesday, followed by weekly jobless claims on Thursday, and non-farm payrolls on Friday.

“The unemployment rate, which peaked at 10 percent in 2009, is now 5.1 percent, slightly above the median of FOMC participants' current estimates of its longer-run normal level,” Yellen said on Thursday. “Although other indicators suggest that the unemployment rate currently understates how much slack remains in the labour market, on balance the economy is no longer far away from full employment.”

Other data scheduled for release include personal income and outlays, the pending home sales index, and the Dallas Fed manufacturing survey, due today; the S&P Case-Shiller home price index, and consumer confidence, due Tuesday; Chicago PMI, due Wednesday; motor vehicle sales, the PMI and ISM manufacturing indices, and constructing spending, due Thursday; and factory orders, due Friday.

Last Friday, a Commerce Department report showed gross domestic product increased at a 3.9 percent annualised rate in the second quarter, up from a prior estimate of 3.7 percent, and better than expected.

Also better than expected was the University of Michigan’s final consumer sentiment index for September, falling to 87.2, from 91.9 in August.

"There are a lot of things to like about the domestic side of the economy for the second half of the year despite all the global malaise," Jacob Oubina, senior economist at RBC Capital Markets in New York. "If the domestic economy holds in there, (Fed policymakers) are going to hike in December."

Over the past five days, the S&P 500 fell 1.4 percent, the Dow retreated 0.4 percent, while the Nasdaq dropped 2.9 percent.

Volkswagen shares took another tumble on Friday, falling 3.8 percent, after people familiar with the matter told Bloomberg that executives in Germany controlled key aspects of the faked tests. After the close, VW named Matthias Mueller, head of its Porsche unit, as its new CEO.

(BusinessDesk)

BusinessDesk.co.nz

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