World Week Ahead: Yellen, US retail sales

Monday 10th November 2014

Remarks by Federal Reserve Chair Janet Yellen on Thursday, followed by the latest monthly report on US retail sales will draw the focus of the week as Wall Street continues to set fresh record highs.

On Friday, Wall Street was buoyed by a Labor Department report showing the US economy added 214,000 jobs in October, while the unemployment rate dropped to 5.8 percent, the lowest level in six years as more people began looking for work.

While the number of jobs added fell short of expectations, the data did not alter the view that the US labour market continues to gather strength, which bodes well for confidence and spending by the almighty consumer.

Indeed, the key economic report scheduled for release in the coming days is US retail sales, due Friday.

“The unemployment rate dropped to 5.8 percent even as the labour force expanded, which implies that more people will be consuming goods and driving," Bob Yawger, director of the futures division at Mizuho Securities USA in New York, told Bloomberg News. "This is all good for demand.”

At the same time, retailers Wal-Mart, Macy's and Nordstrom are among the companies scheduled to release their latest quarterly earnings in the coming days.

On Thursday, Yellen will speak at a Global Research Forum on International Macroeconomics and Finance in Washington, DC, sponsored by the European Central Bank, Federal Reserve Board, and Federal Reserve Bank of New York.

Today though, Boston Fed President Eric Rosengren speaks in Lexington, Virginia. On Wednesday, Philadelphia Fed President Charles Plosser talks in London. On Thursday, Minneapolis Fed President Narayana Kocherlakota gives a speech at Stanford in California, while Plosser is on a panel discussion in Philadelphia. On Friday, St. Louis Fed President James Bullard holds a talk in St Louis.

The American economy continues to show evidence of accelerating growth, even in the face of struggling economies elsewhere. The European Central Bank last week promised an increase in monetary stimulus, hot on the heels of a similar pledge by the Bank of Japan the prior week.

“The US economy’s not perfect, but it does seem to be operating much better than most of its peers,” Stephen Stanley, chief economist at Amherst Pierpont Securities, told Bloomberg News.

Fourteen of 19 primary dealers, or the banks that deal directly with the Fed, surveyed by Reuters said they expect the first Fed rate hike by June 2015, with borrowing costs rising to 1 percent at the end of next year.

On Wall Street last week, the Dow Jones Industrial Average added 1.1 percent, the Standard & Poor’s 500 Index gained 0.7 percent, while the Nasdaq Composite Index eked out a 0.04 percent gain.

Both the Dow and the S&P ended the week at record closing highs, bringing their gains for 2014 to 8.1 percent and 11.9 percent respectively.

US Treasuries also advanced for the week, with yields on the 10-year note falling four basis points to 2.30 percent. On Tuesday, the US bond market is closed for Veterans Day.

Other clues on the state of the US economy scheduled for release this week include the NFIB small business optimism Index, Atlanta Fed business inflation expectations, wholesale trade, due Wednesday; weekly jobless claims, due Thursday; and consumer sentiment and business inventories, due Friday.

In Europe, the Stoxx 600 Index posted a 0.5 percent slide last week. The FTSE 100 Index managed a 0.3 percent gain.

The latest data on the struggling euro-zone economy will arrive in the form of Sentix investor confidence, due today; industrial production, due Wednesday; Germany’s consumer price index, due Thursday; and euro-zone preliminary gross domestic product for the third quarter as well as the consumer price index, due Friday.

BusinessDesk.co.nz

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