World Week Ahead: US economy accelerates
Further evidence of the strong US labour market and a rebound in the price of oil has bolstered the mood on Wall Street as investors await more corporate earnings as well as the outcomes of meetings of Group of 20 leaders and euro-zone finance ministers.
A report on the weekend showed China's trade surplus ballooned to a record US$60 billion in January, as exports dropped 3.3 percent from year-ago levels while imports plunged 19.9 percent, bolstering concern about the nation's economy.
"The import data suggests a substantial slowdown in the industrial sector. The first quarter looks to be pretty horrible," Andrew Polk, economist at the Conference Board in Beijing, told Reuters.
Oil prices seem to have halted their freefall. Crude prices have risen nearly 20 per cent over the past six sessions, but remain about 50 per cent below their peak from the middle of last year because of concern about worldwide excess supply.
"There are as many positive factors now in the market as negative, and everyone's waiting for the next shoe to drop," Phil Flynn, analyst at Price Futures Group in Chicago, told Reuters.
US companies releasing their latest results in the coming days include Coca-Cola, PG&E, Applied Materials, Cisco, Pepsi, Tesla, Whole Foods, AIG, and Groupon.
About 78 percent of Standard & Poor's 500 companies that have posted earnings this season have exceeded analyst estimates, while 56 percent having surpassed sales projections, data compiled by Bloomberg show.
"We've seen sharp cuts in earnings expectations and it has been the driver of the negative performance we saw in the last month," Anwiti Bahuguna, the senior portfolio manager of Columbia Management's global asset allocation team, told Bloomberg News. "It seems that sharp of a cut was a little bit overdone."
Last week, the Dow Jones Industrial Average rallied 3.8 percent, the Standard & Poor's 500 Index climbed 3 percent, while the Nasdaq Composite Index gained 2.4 percent. Those gains helped put the three main equity indices in the black for 2015, with the Dow up 0.21 percent, the S&P 500 0.02 percent ahead, and the Nasdaq up 0.35 percent.
Last Friday a Labor Department report showed nonfarm payrolls increased 257,000 in January, beating analyst predictions for 228,000. The unemployment rate rose to 5.7 percent as more people began looking for work in an improving jobs market. And average hourly wages posted their biggest gain since June 2007.
The data underpin expectations the US Federal Reserve will begin raising interest rates later this year. Futures contracts show a 27 percent chance the central bank will lift rates at its policy meeting in June, according to Bloomberg on Friday, compared with a likelihood of 18 percent on Thursday.
In a Reuters survey on Friday, 10 of 19 primary dealers, or the banks that deal directly with the Fed, said they expect the Fed to raise rates by June, compared to 13 of 20 who predicted the hike in a January 9 poll. All but two expect at least two rate increases in 2015, while the median expectation for where the federal funds rate will end the year was 0.75 percent and 2.125 percent for 2016.
US Treasuries, particularly two-year notes, fell as a result, pushing yields on two-year notes 19 basis points higher to 0.65 percent last week.
"The payroll data was fabulous, especially the average hourly income figures," said Thomas Simons, a government-debt economist in New York at Jefferies, one of the 22 primary dealers that trade with the US central bank, told Bloomberg Business. "The market had been getting significantly pessimistic on the outlook. So this was a little bit of a reminder of the reality that it's possible the Fed might tighten policy this year."
US policy makers scheduled to speak this week include Richmond Fed President Jeffrey Lacker on Tuesday, and Dallas Fed President Richard Fisher on Wednesday.
Investors will also keep an eye on a meeting of finance ministers and central bankers from the Group of 20 nations today and Tuesday in Istanbul.
US economic reports released in the coming days include the NFIB small business index and wholesale trade, due Tuesday; the Treasury budget, due Wednesday; weekly jobless claims, retail sales, and business inventories, due Thursday; and import and export prices, and consumer sentiment, due Friday.
In Europe, the Stoxx 600 Index gained 1.7 percent last week. Reports due in the coming days include German trade balance, and euro-zone Sentix investor confidence, due today; German consumer price index, and euro-zone industrial production, due Thursday; euro-zone trade balance and GDP, due Friday.
Investors will closely watch ongoing negotiations between the European Union and the new Greek anti-austerity government over the nation's bailout conditions. Those talks will be high on Wednesday's agenda of a meeting of the Eurogroup of euro-zone finance ministers.