World Week Ahead New heights, Cyprus deal

Monday 25th March 2013

The rally that has propelled the Standard & Poor's 500 Index 9.2 percent higher so far this year may finally-this week-bring the benchmark index to a fresh record.

The index is now about 10 points shy of its all-time high of 1,565.15 and it could get the boost it needs as traders position their holdings for the end of the first quarter and if this week's data confirms the momentum in the world's biggest economy.

"The story doesn't seem to be weakening and domestically it seems to be growing in terms of strength," Sandy Lincoln, chief market strategist at BMO Asset Management US, told Reuters.

"People are looking at a better backdrop, whether it is the jobs data, the GDP data or the consumer stepping up on the retail sales side in spite of fiscal drag."

Key to sentiment in this four-day holiday shortened week is more good news on the strength of the US economy. Last week's data on housing, manufacturing and jobs all pointed to a pick-up in the pace of recovery, while the Federal Reserve signalled it will maintain its stimulus program to support it.

Among the most important reports due in the days ahead are February consumer spending, February durable goods orders, January property prices and the final reading on fourth-quarter GDP.

"Consumer spending is growing at a decent pace, given all the headwinds," Nigel Gault, chief US economist for IHS Global Insight, told Bloomberg "Capital goods orders are moving up again. That says something about domestic demand."

Even so, the International Monetary Fund will downgrade its forecast for US expansion in its next World Economic Outlook, set to be published next month, according to Italian news agency ANSA, citing a draft of the report.

The American economy will grow 1.7 percent in 2013, down from the IMF's 2.0 percent forecast in January, ANSA said. The IMF kept intact its 3 percent US growth forecast for 2014.

The global economy will grow 3.4 percent this year, down from a previous estimate of 3.5 percent.

One potential challenge for the markets is the continuing crisis in Europe. And while Cyprus has dominated the headlines the past week, there seems to be less concern about its troubles spreading beyond its borders.

Lawmakers in Cyprus have made progress on adopting measures demanded by their euro zone partners after initially rejecting the tough medicine.

"There are only hard choices left," European Union Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.

In the past week, the S&P 500 slipped 0.2 percent, the Nasdaq Composite Index edged 0.1 percent lower, while the Dow Jones Industrial Average ended Friday just shy of the level it closed at a week earlier.

Europe's benchmark Stoxx 600 Index fell 0.2 percent in the past five days.

Meanwhile, the battle over Dell is intensifying. Blackstone Group and Carl Icahn submitted proposals to buy Dell that would rival a US$24.4 billion buyout offer from Silver Lake Management and company founder Michael Dell, Bloomberg News reported, citing people with knowledge of the matter.

Dell's board will say on Monday whether the new proposals are reasonably likely to be superior, or most likely say it needs more time to study the offers, one of the people told Bloomberg.

BusinessDesk.co.nz

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