World Week Ahead: US earnings, Fed minutes

Monday 6th October 2014

Investors will eye the start of the US third-quarter earnings season and the release of minutes from the latest Federal Reserve meeting, as well as a slew of central bank officials speaking in the coming days, after Friday’s jobs report showed American employers are confident enough to hire more workers than anticipated.

Employers added a higher-than-expected 248,000 workers to their payrolls in September, pushing the jobless rate down to 5.9 percent, the lowest level since July 2008, according to Labor Department data on Friday.

That helped turn the mood on Wall Street, which over the last couple of weeks had been mired in concern about further evidence of Europe’s economic troubles and intensifying geopolitical tension.

On Friday, the Dow Jones Industrial Average rallied 1.2 percent, while the Standard & Poor’s 500 Index climbed 1.1 percent and the Nasdaq Composite Index advanced 1 percent. Those gains limited the decline for the week: the Dow fell 0.6 percent, the S&P 500 slid 0.8 percent, as did the Nasdaq.

The US third-quarter reporting season unofficially starts on Wednesday when Alcoa is scheduled to post its latest results. Profit at companies in the S&P 500 rose 4.9 percent in the July-September period, according to the average estimate of economists in a Bloomberg survey.

Also on Wednesday, the Fed will release minutes of its Sept. 16-17 meeting, at which it decided to cut its monthly bond purchases to US$15 billion. The central bank is expected to end the programme this month. Policy makers next begin their two-day meeting on Oct. 28.

“The labour market is getting better, which means imminent changes to the Fed’s tone,” Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York, told Bloomberg News.

There will be plenty of Fed officials to watch in the coming days.

Most notable, Fed chair Janet Yellen will attend a meeting the Financial Stability Oversight Council, chaired by Treasury Secretary Jack Lew in Washington on Monday.

On Thursday, European Central Bank President Mario Draghi will speak and take part in a panel discussion with Fed vice chair Stanley Fischer in Washington.

“I still think the first rate hike is maybe mid-year," Kim Rupert, managing director at Action Economics in San Francisco, told Reuters. "We are trying to gauge whether it's March or June."

Meanwhile, world policy makers will gather in Washington this week for annual meetings of the G20, the International Monetary Fund and the World Bank. The IMF will release its latest World Economic Outlook report on Thursday.

The Bank of Japan also meets on Thursday, as does the Bank of England.

With the world’s largest economy clearly outperforming the euro zone and Japan, the US dollar has strengthened. The US dollar index, which tracks the greenback’s value against is major currencies, touched the highest level in more than four years on Friday.

"The US economy is the only place that's growing. That's why the US dollar is appreciating because there's very little confidence that US growth is spreading anywhere else,” Roger Sadewsky, investment director for multi-asset investing at Standard Life Investments in Edinburgh, Scotland, told Reuters.

In Europe, the Stoxx 600 jumped 1 percent on Friday, also buoyed by the US jobs report and curbing losses for the week.

Last Thursday, ECB President Mario Draghi said the central bank will start buying covered-bonds this month and asset-backed securities this quarter, but investors were disappointed with a lack of details and targets for its asset purchase plans. The ECB kept its main refinancing rate at 0.05 percent.

Hewlett-Packard plans to break in two, separating its personal-computer and printer businesses from its corporate hardware and services operations, the Wall Street Journal reported on Sunday, citing people familiar with the matter. The company plans to announce the move as early as Monday, according to the report.

BusinessDesk.co.nz

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