World Week Ahead: Fed meeting looms

Monday 15th December 2014

US Federal Reserve policy makers are set to gather in the wake of Wall Street’s worst weekly drop in three years, amid heightened concern that the plunge in the price of oil might trigger an overall weakening in the global economy.

The Federal Open Market Committee begins its two day meeting on Tuesday in Washington, however, the focus remains on whether policy makers will retain the phrase that interest rates will remain low for “a considerable period”. At the end of the meeting on Wednesday, there will be a statement, fresh forecasts and a press conference by Fed Chair Janet Yellen.

"They are going to remove it; I don’t think (Yellen) is going to keep it in there just because of what we are seeing with the energy sector,” Sean McCarthy, regional chief investment officer for Wells Fargo Private Bank in Scottsdale, Arizona, told Reuters. "All the other data has been strong, whether you are looking at construction, at the ISM numbers, and especially the jobs data that she cares about most."

Equities sank along with the price of oil on Friday after the Paris based International Energy Agency downgraded its outlook for global oil demand growth for 2015 by 230,000 barrels per day to 900,000 barrels per day as it predicted a drop in fuel consumption in Russia and other oil exporting countries.

On Friday, Benchmark Brent oil settled below US$62 a barrel while US crude slid below US$58. Some traders expect US crude to test the US$55 level in the next few sessions. On the weekend, the energy minister of the United Arab Emirates said the Organisation of Petroleum Exporting Countries would hold output at current levels even if oil falls to US$40.

On Wall Street last week, the Dow Jones Industrial Average sank 3.8 percent, while the Standard & Poor’s 500 Index dropped 3.5 percent, and the Nasdaq Composite Index slid 2.7 percent. It was the worst weekly slump since 2011 for both the Dow and the S&P 500.

The Chicago Board Options Exchange Volatility Index, considered a gauge of concern among investors, soared a whopping 78 percent last week.

Still, some clearly see value among US stocks.

New York based Apollo Global Management is in late stage talks to buy PetSmart for about US$8 billion following an auction process that has been underway for weeks, Bloomberg News reported on Saturday, citing people, who asked not to be identified because the talks are confidential. It would be the largest leveraged deal for a US company this year.

The coming days offer a slew of economic reports, including on the real estate industry with the housing market index today and housing starts on Tuesday.

Other data scheduled for release include the Empire State manufacturing survey, and industrial production, due today; the preliminary PMI manufacturing index, due Tuesday; the consumer price index, and current account, due Wednesday; weekly jobless claims, preliminary PMI services, Philadelphia Fed survey, and leading indicators, due Thursday; and Atlanta Fed business inflation expectations, and the Kansas City Fed manufacturing index, due Friday.

In Europe, the Stoxx 600 Index tanked 5.8 percent last week, with a 2.6 percent drop on Friday alone, while the UK’s FTSE 100 Index tumbled 6.6 percent over five days. Concerns about oil, Russia, and Greece’s latest political crisis put investors on the defensive.

Here, investors will eye reports on euro-zone ZEW economic sentiment, as well as the euro-zone trade balance, due Tuesday; the euro-zone consume price index, due Wednesday; German IFO data, due Thursday; and Germany’s producer price index as well as the euro zone’s current account, due Friday.

The news from China was not upbeat either. China's economic growth could ease to 7.1 percent in 2015 from an expected 7.4 percent this year, because of a weakening property sector, Reuters reported on Sunday, citing a research report by the country’s central bank.

BusinessDesk.co.nz

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