A slew of US corporate earnings including from Amazon and a report on the country’s third-quarter gross domestic product will set the tone this week, while some expect the European Central Bank to announce a tapering of its asset purchase program.
Investors also will keep a close eye on fresh clues about President Donald Trump’s choice for the next Federal Reserve chair when Janet Yellen’s term ends in February. He is considering Fed Governor Jerome Powell and Stanford University economist John Taylor, while Yellen also remains in the running.
“Most people are saying it’s down to two—Mr. Taylor and Mr. Powell. I also met with Janet Yellen, who I like a lot, I really like her a lot,” Trump told Fox Business Network in an interview to be broadcast on Sunday and Monday, Bloomberg reported. “So I have three people that I’m looking at, and there are a couple of others. I’d say I will make my decision very shortly.”
Wall Street has its own favourite.
“Powell would follow very close to Yellen and would be a great choice for the market,” Paul Zemsky, chief investment officer, Multi-Asset Strategies and Solutions at Voya Investment Management in New York, told Reuters.
“Taylor would be a negative surprise for the stock market,” Zemsky noted. “Applying rules-based policy would bring closer the risk of a recession before the economic expansion plays out entirely.”
On Friday, the Dow Jones Industrial Average, the Standard & Poor’s 500 Index and the Nasdaq Composite Index closed at record highs amid optimism that Trump moved a step closer to delivering his promised tax cuts.
US Treasuries slid, sending yields on the 10-year note six basis points higher to 2.38 percent, a three-month high, according to Bloomberg.
For the week, the Dow rallied 2 percent, the S&P 500 climbed 0.9 percent, while the Nasdaq added 0.4 percent.
“A lot of the storyline we have been talking about this year is now playing out,” Mike Wilson, Morgan Stanley’s chief US equity strategist, told Bloomberg. “We’re going to have a good quarter of earnings again, we now are getting closer to the Fed chair certainty. We have the budget resolution, which is a big step in the direction of tax cuts.”
Besides Amazon, Alphabet, Microsoft, Intel and McDonald’s are also among those set to report their latest quarterly earnings this week.
More than 70 percent of the 88 S&P 500 companies that reported so far have exceeded profit expectations, according to Reuters.
The latest US economic data to be released in the coming days include reports on the Chicago Fed national activity index, due today; PMI composite, and Richmond Fed manufacturing index, due Tuesday; durable goods orders, FHFA house price index, and new home sales, due Wednesday; international trade in goods, weekly jobless claims, pending home sales index, and Kansas City Fed manufacturing index, due Thursday; as well as GDP and consumer sentiment, due Friday.
In Europe, the Stoxx 600 Index ended Friday with a 0.3 percent gain from the previous day’s close.
While the European Central Bank is not expected to announce a change in interest rates following its meeting on Thursday, some analysts expect the central bank to announce a reduction in the pace of its asset purchases.
TD Securities said it expects the ECB to announce a halving of its current asset buys to 30 billion euros a month, for 12 months.
"As we’ve had a bit more clarity on the pace versus duration debate from key ECB members recently, we now think that the ECB is likely to cut the pace of QE a bit faster and focus instead on the duration of purchases,” TD Securities said in a note.
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