World Week Ahead: Optimism intact

Monday 4th August 2014

Even as concern about debt crises in Argentina and Portugal helped spark a two-day selloff in equity markets worldwide, investors remain optimistic that the US economy will keep expanding and corporate profits will keep rising at a healthy clip.

Last week, the Dow Jones Industrial Average slumped 2.75 percent, the Standard & Poor’s 500 Index shed 2.69 percent, and the Nasdaq Composite Index slid 2.18 percent.

Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, told Reuters that market dips should be seen as buying opportunities.

"I don't think we're anywhere near the end of the expansion cycle," Trunow said.

On Friday, a report showed that nonfarm payrolls climbed 209,000 in July, after jumping by 298,000 in June. July’s gain was below expectations for an increase of 233,000. June’s increase was revised higher. The unemployment rate rose to 6.2 percent, from 6.1 percent as more people were encouraged to look for work.

Earlier in the week the Federal Open Market Committee slowed the pace of its monthly bond-buying programme by another US$10 billion to US$25 billion, while a report showed that the US economy expanded at a better-than-expected 4 percent annualised rate in the second quarter, after contracting a revised 2.1 percent in the first quarter.

On the bright side, for those investors wary of the Fed taking its foot of the accelerator too fast, the latest jobs data alleviated concern that US policy makers will see the need to lift the central bank’s key interest rate soon.

"The disappointment in [the] jobs report is sufficient in allaying fears of a premature Fed hike," Ashraf Laidi, chief executive officer of Intermarket Strategy, told Bloomberg News.

That was reflected in a drop of the US currency, which slid against the euro and the yen on Friday.

The latest US corporate earnings have proven optimistic overall despite some misses. About 76 percent of the 379 S&P 500 companies that have released results this quarter have surpassed analysts’ estimates for profit, while 65 percent have exceeded sales projections, according to Bloomberg News.

'Shares of LinkedIn soared 11.7 percent on Friday after the company posted better-than-expected quarterly sales.

Shares of Procter & Gamble added 3 percent on Friday after the company reported better-than-expected quarterly profit and announced it will get rid of up to 100 brands, more than half, in the next two years to cut costs.

"We're going to create a faster growing more profitable company that is far simpler to manage and operate," Chief Executive Officer AG Lafley said on a conference call, Reuters reported. "Less will be much more."

AIG, Walt Disney, and Keurig Green Mountain are among companies releasing their latest quarterly earnings this week.

The American economic calendar offers reports on the PMI services index, factory orders and the ISM non-manufacturing index, due Tuesday; international trade, due Wednesday; weekly jobless claims, and consumer credit, due Thursday; and productivity and costs as well as whole trade, due Friday.

In the days ahead in Europe, there will be reports on eurozone producer prices, retail sales, services, Germany factory output, British industrial production, Italian GDP and on Thursday there will be policy decisions by the Bank of England and European Central Bank.

Meanwhile, China’s services sector grew at the slowest pace in six months in July, according to official non-manufacturing PMI data released on the weekend.

Services in China accounted for 46.6 percent of gross domestic product in the first half of 2014, 1.3 percentage points higher than the same period a year earlier, Bloomberg reported, quoting the National Bureau of Statistics.

BusinessDesk.co.nz

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