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World Week Ahead: Dudley saves the day

07 Apr 2015

Wall Street advanced, shrugging off earlier declines following Friday's disappointing US jobs report, after New York Fed President William Dudley suggested interest rate increases will be "relatively shallow."

Dudley's comments came hot on the heels of last Friday's Labor Department report which showed US companies added 126,000 jobs in March, well below expectations for 242,000 in a Reuters survey, and the weakest in more than a year. Wall Street was closed on Friday.

"For financial markets, the likely path of short-term rates after lift-off is just as important as the timing of lift-off," Dudley said in a speech in Newark, New Jersey on Monday. "Here, I anticipate that the path will be relatively shallow."

"The timing of normalisation will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated," Dudley said.

Investors will scrutinise the minutes from the latest Federal Open Market Committee meeting scheduled to be released on Wednesday.

Fed officials scheduled to speak this week might offer rate clues too. On Tuesday, Dudley is set to speak again, in New Jersey, while Minneapolis Fed President Narayana Kocherlakota will hold a talk in Bismarck, North Dakota. On Wednesday, Fed Governor Jerome Powell will speak in New York, and on Friday Richmond Fed President Jeffrey Lacker will talk in Sarasota, Florida.

A report on Monday in the US showed that service industries expanded in March, though at a slightly easier pace than in the previous month. The Institute for Supply Management's non-manufacturing index came in at 56.5, down from 56.9 in February.

Separately, Markit's final reading of its purchasing managers index for the services sector increased to 59.2 in March, the highest level since August and up from 57.1 in February.

"The latest survey highlights a strong underlying pace of US economic growth moving into the second quarter of 2015," Tim Moore, senior economist at Markit, said in a statement. "New business trends across the service sector have picked up especially sharply from the lows seen earlier in the year, and job hiring has strengthened as a result."

It wasn't all good news however.

"Service providers' business confidence dipped in March and remained well below the peaks recorded in 2014, weighed down in part by the prospect of a Fed rate rise later this year," according to Moore. "Meanwhile, subdued input price pressures were reported in March, although the overall rate of cost inflation has ticked up slightly from a recent five-year low."

Other US economic data due this week include consumer credit, due Tuesday; weekly jobless claims, and wholesale trade, due Thursday; as well as import and export prices, due Friday.

This week also marks the start of another US earnings season. Alcoa reports on April 8.

Analysts predict profits for S&P 500 companies fell 5.8 percent in the first quarter because of dropping oil prices and a stronger US dollar, according to a Bloomberg survey.

"Both bond and equity markets will be very sensitive to any signs of weakness in the upcoming earnings season," Michael Shaoul, who helps oversee US$10 billion as chief executive officer of Marketfield Asset Management in New York, noted, according to Bloomberg.

In mid-afternoon trading on Monday, the Dow Jones Industrial Average added 0.93 percent, the Standard & Poor's 500 Index gained 0.84 percent and the Nasdaq Composite Index climbed 0.7 percent.

Gains in shares of Microsoft and those of Chevron, up 2.9 percent and 2.1 percent respectively, led the Dow higher.

Chevron gained as oil prices rallied more than 5 percent on Monday as investors bet that Iran might not resume oil exports as quickly as initially thought, following last week's preliminary nuclear agreement.

"People betting on Iran's oil arriving tomorrow realise they may have to wait up to a year," Phil Flynn, analyst at Price Futures Group in Chicago, told Reuters

In Europe, most financial markets were closed for the Easter holiday on Monday. In the previous, holiday-shortened, week, Europe's Stoxx 600 Index gained 0.6 percent.

In the coming days investors will eye reports including Markit's euro-zone services PMI, Sentix euro-zone investor confidence, and euro-zone producer prices, due Tuesday; German factory orders, euro-zone retail PMI and euro-zone retail sales, due Wednesday; and German industrial production, and German trade balance, due Thursday. .

Bank of England policy makers also meet on Thursday.

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