World Week Ahead: Earnings, data to dominate

Monday 21st July 2014

Investors are set to refocus on US corporate earnings in the days ahead with Apple, Facebook, Microsoft as well as Boeing and Caterpillar on deck as the pace of reporting accelerates.

In all some 140 companies in the Standard & Poor’s 500 Index are set to report quarterly results this week.

Better-than-expected results from Google and Intel last week helped to offset uncertainty from geopolitical concerns driven by the shooting down of the Malaysia Airlines passenger jet over eastern Ukraine and Israel’s invasion into Gaza.

“Earnings continue to surprise on the upside, which does give an impetus for stocks to go higher,” Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois, told Bloomberg News. “Certainly the geopolitical concern has been a major drag, or at least a worry. Volatility is coming back so we’re going to have a bumpy ride.

Last week, the Dow Jones Industrial Average added 0.9 percent, the Standard & Poor’s 500 index gained 0.5 percent, while the Nasdaq Composite Index advanced 0.4 percent. So far this year the S&P 500 has advanced 8.2 percent.

On Friday, shares of Google climbed 4 percent after the company posted sales that surpassed expectations.

Also helping to lift sentiment is continuing merger and acquisition activity. Twenty First Century Fox is courting Time Warner in a deal expected to be worth about US$80 billion. Last week US drugmaker AbbVie persuaded UK’s Shire to accept a US$55 billion takeover offer.

The world’s largest economy also continues to recover, underpinning rising valuations. On Friday, a report showed that the index of US leading indicators gained for the fifth straight month in June, bolstering an optimistic outlook.

"We have an economy that is expanding," Peter Kenny, chief market strategist at Clearpool Group in New York, told Reuters. "We have many data points that support that narrative.”

This week offers several reports on the US real estate market, which has been considered a weak point in the nation’s recovery, with the FHFA house price index and existing home sales due Tuesday and new home sales due Thursday.

“The housing sector, however, has shown little recent progress,” Federal Reserve Chair Janet Yellen told US Congress in her semiannual monetary policy update last week. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have, overall, continued to be disappointing.”

Bill Gross, head of the world’s largest bond fund at Pimco, said the Fed’s continuing bias for easy money is likely to keep the yield on the US 10-year Treasury trading in a narrow 2.5 percent to 3 percent range for some time yet.

"When the Fed begins its upward journey – June 2015 – then it must be cautious and probably needs to stop at 2 percent sometime in 2017 because we have a highly levered economy, structural demographic headwinds which lower real growth and the effect of technology and job displacement," Gross told Reuters.

Other economic data scheduled for release in the coming days include the Chicago Fed national activity index, due today; the consumer price index and Richmond Fed manufacturing index, due Tuesday; weekly jobless claims, the PMI manufacturing index flash, and Kansas City Fed manufacturing index, due Thursday; and durable goods orders, due Friday.

The International Monetary Fund will provide its latest World Economic Outlook on Thursday.

In Europe, the Stoxx 600 Index advanced 0.8 percent last week, while the UK’s FTSE 100 Index rose 0.9 percent.

Here, key reports scheduled for release this week include euzo-zone consumer confidence, due Wednesday; euro-zone flash composite PMI, due Thursday, and the UK’s second-quarter gross domestic product, Germany’s Ifo business confidence and GfK consumer confidence, due Friday.

BusinessDesk.co.nz

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