World Week Ahead: Greece and US earnings

Monday 6th July 2015

A fresh US corporate earnings season and Friday’s speech by Federal Reserve Chair Janet Yellen might help distract attention from the Greek eurozone tragedy as the results of the country’s referendum are assessed.

Last week, Europe’s Stoxx 600 Index sank 5 percent, after Greek Prime Minister Alexis Tsipras’ surprise call for a national referendum on the latest bailout package from international creditors, a deal he is urging Greek voters to reject so he can negotiate a better one.

Greece also closed its banks and stock market.

In the lead-up to Sunday’s referendum, negotiations between Greece and its creditors collapsed and the previous bailout accord expired.

“Last week really felt like a game of chess which just needs to be played out, ”Yogi Dewan, founder of Hassium Asset Management, told Bloomberg. “You can be sure that we’ll get more sharp moves on Monday. It’s going to be another turbulent week.”

Wall Street also slid in the Independence Day holiday shortened week, with markets closed last Friday. Both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index fell 1.2 percent, while the Nasdaq Composite Index slid 1.4 percent.

A US jobs report on Thursday lowered expectations the Fed will raise interest rates in September. Futures show a 29 percent probability policy makers will lift rates at their September meeting, down from 35 percent Wednesday, according to data compiled by Bloomberg.

That was good news for the US currency, which strengthened for the week.

“The Fed will raise rates in the back half of the year,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust in Bryn Mawr, Pennsylvania, told Bloomberg. “The strength of the dollar will be there, but I don’t think you’re going to get the kind of moves that you had certainly in 2014 or the early part of this year.”

Yellen is set to speak on Friday in Cleveland, though first the Fed releases the minutes from last month's policy meeting on Wednesday.

Other Fed officials scheduled to talk this week include San Francisco Fed president John Williams in Los Angeles on Wednesday, Minneapolis Fed chief Narayana Kocherlakota in Frankfurt, Germany, Fed governor Lael Brainard in Washington, Kansas City Fed president Esther George in Stillwater, Oklahoma, on Thursday, and Boston Fed’s Eric Rosengren in Victor, Idaho, on Friday.

Meanwhile, expectations for US second quarter earnings, with Alcoa scheduled to report on July 8, are moderate, to say the least.

Analysts forecast corporate profits will contract 6.5 percent for the period before turning positive in the fourth quarter, according to Bloomberg data; benchmark S&P 500 earnings are forecast to weaken 3 percent from a year ago, which would be the first profit decline since the third quarter of 2009, according to Thomson Reuters data.

But earnings could surprise.

"There's some stability in the second quarter with the dollar and oil, so maybe there's going to be a positive surprise for multinationals and the energy sector," Mark Kepner, managing director, sales and trading at Themis Trading in Chatham, New Jersey, told Reuters.

In terms of economic data, this week offers reports on PMI services and ISM non-manufacturing, due today; international trade, due Tuesday; chain store sales and weekly jobless claims, due Thursday; and wholesale trade, due Friday.

China decided to suspend new stock sales and, in a first, establish a fund to stabilise the country’s share markets, the Wall Street Journal reported on Saturday. The nation’s benchmark stock index has dropped more than a quarter from a record high on June 12.

BusinessDesk.co.nz

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