World Week Ahead Fed QE words awaited

Sunday 26th May 2013

Investors will eye Federal Reserve officials Eric Rosengren and Sandra Pianalto in the coming day for further clues on the timing of a taper of bond buying under the US central bank's quantitative easing policy.

In a bid to bolster growth by keeping interest rates low, the Fed has been pursuing QE, sometimes called printing money, by acquiring bonds at a rate of US$85 billion a month, swelling its balance sheet in the process, and has linked that pace of buying to a drop in the jobless rate.

Fed Chairman Ben Bernanke last week scared Wall Street off its highs by suggesting that it might soon be time to ease that buying rate, with minutes from the Fed's latest policy committee meeting then showing that some top officials were open to doing so as early as June.

In the wake of Bernanke's comments, which triggered a global rout in equities - compounded by weak data from China, Fed officials sought to downplay both the timing and the speed at which bond buying will be curtailed.

This week Boston Fed President Rosengren is scheduled to speak about the economic outlook on Wednesday in Minneapolis, while Cleveland Fed President Pianalto is due to speak about financial stability analysis on Friday in Washington.

What those two regional presidents say could go a long way to extending last week's losses or renewing the year-to-date rally.

After closing at record highs on Tuesday, the Standard & Poor's 500 Index and the Dow Jones Industrial Average ended with losses for the week. In the past five days, the Dow fell 0.3 percent, while the S&P 500 and the Nasdaq Composite Index both shed 1.1 percent.

"The market is trying to price in that at some point in time the Fed is going to take their foot off the gas pedal," Arvin Soh, a portfolio manager with GAM USA in New York, told Bloomberg News. "That's because growth is picking up and is sustainable. That should ultimately be a good thing. The problem is everyone is long risk."

The greenback weakened 0.7 percent against the euro for the week, though it pared some losses after Friday's positive US durable goods numbers.

With US markets closed for the Memorial Day holiday on Monday, direction could come from China's statistics bureau which is scheduled to release industrial companies' profits. The Asian powerhouse is struggling to maintain its pace of growth.

Key to the Fed's next policy decision will be the May payrolls report on June 7. But this week, there's the S&P Case-Shiller home price index and consumer confidence numbers, as well as Richmond and Dallas Fed manufacturing surveys, all due on Tuesday.

On Thursday, the first revision of first-quarter GDP, pending home sales and weekly jobless claims are scheduled for release, followed by Chicago PMI and consumer sentiment on Friday.

Europe's Stoxx 600 Index dropped 1.7 percent in the past five days, the first weekly loss in more than a month.

Germany's unemployment data for May are due on Wednesday, as are euro-zone money supply numbers. On Thursday, the latest euro-zone confidence data are scheduled for release, followed by the region's unemployment data on Friday.

Germany continues to shine as the bright spot in an otherwise dismal Europe and is a key reason why the DAX, until last week, had its longest winning streak since July 2005 and why the index is expected to rally higher.

In Japan, a slew of reports are scheduled for release at the end of the week, including household spending, unemployment, CPI and industrial production. Japanese shares were hardest hit last week, with the Nikkei volatility index surging to a two-year high at one point.

BusinessDesk.co.nz

Comments from our readers

No comments yet