Monday 23rd February 2015 |
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S Federal Reserve chair Janet Yellen takes centre stage this week with her semi-annual testimony to US lawmakers, as investors seek to narrow further the window when the world’s most important central bank will start to lift interest rates.
Yellen’s comments on monetary policy and the state of the US economy follow the release of January’s policymaker meeting minutes which showed that the majority of the Fed’s open market committee’s members are in no rush to increase rates. She is set to testify on February 24 and again the next day.
Still most investors continue to position for higher US rates at some point this year.
“They want to tighten if they can,” Eric Stein, a money manager at Eaton Vance in Boston who oversees US$13 billion, told Bloomberg. “If everything stays the same, I think they can tighten. They want to get off zero.”
Traders see a 53 percent chance the Fed will raise rates by September, versus 39 percent at the end of last month, according to futures-trading data analysed by Bloomberg.
Despite the approaching end of low rates, which has helped fuel valuation gains, US stocks continue to rally.
On Friday, the Dow Jones Industrial Average rose 0.86 percent to close at a record 18,140.44, while the Standard & Poor’s 500 Index increased 0.61 percent to end at a record close of 2,110.3. The Nasdaq Composite Index advanced 0.63 percent to 4,955.97.
For the week, the Dow added 0.7 percent, the S&P 500 gained 0.6 percent and the Nasdaq rose 1.3 percent.
"The market has done quite well," Frank Cappelleri, technical market analyst and trader at Instinet in New York, told Reuters. “Do we push higher at this point, or do we need some of the extended areas pull back to a greater degree?"
Macy's, Home Depot, Target, Lowe's Companies and Gap are among the companies set to report results in the days ahead as the earnings season starts to fade.
But investors will have lots to mull as it’s a big week in terms of economic data.
Fresh clues on the US housing market will come with reports on existing home sales today, S&P Case-Shiller home price index on Tuesday, new home sales on Wednesday, the FHFA house price index on Thursday, and the pending home sales index on Friday.
Other data will arrive in the form of the Chicago Fed national activity index, preliminary PMI services, and Dallas Fed manufacturing survey, due today; consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; the consumer price index, durable goods orders, and weekly jobless claims, due Thursday; and GDP, Chicago PMI, and consumer sentiment on Friday.
On Friday, New York Fed President William Dudley, Cleveland Fed President Loretta Mester, Fed Vice Chair Stanley Fischer, European Central Bank Vice President Vitor Constancio and Bank of Japan Deputy Governor Hiroshi Nakaso are all scheduled to speak at a monetary policy forum, in New York.
In Europe last week, the Stoxx 600 Index added 1.4 percent, lifting its gains to 12 percent for 2015. The DAX set an intraday high on Friday and set a fresh closing high too. There’s a good chance European shares will open higher after Greece and its EU partners agreed on a four-month extension to the current financing arrangement.
Monday’s advance though could be checked because Greece’s fate is far from certain.
“While Greece secured some ability to rewrite the terms of its current program, the sense is that the combination of pressure on its banking sector and on state cash flows has forced the bulk of concessions to come from their side,” Malcolm Barr, economist at JPMorgan Chase, said in a client note, according to Bloomberg. “This may place some degree of strain within Syriza itself.”
A final resolution remains elusive and whether Greece will remain in the euro zone is to be determined.
BusinessDesk.co.nz
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