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World week ahead: Bernanke to kick-start 2014

Wed, 11 Jul 2018

After Santa brought further gains to Wall Street last week, pushing both the Dow and S&P 500 to record highs, investors will eye a speech by Federal Reserve chairman Ben Bernanke for further clues about the central bank's plans for tapering its stimulus.

Dr Bernanke, who is set to discuss the changing Fed in Philadelphia on Friday, might offer additional guidance after the Fed earlier this month announced it will reduce its monthly pace of bond purchases to $US75 billion in January, from $US85 billion.

Philadelphia Fed Bank president Charles Plosser and Fed governor Jeremy Stein are also scheduled to speak in Philadelphia on Friday, while Richmond Fed Bank president Jeffrey Lacker will talk about the economic outlook in Baltimore.

Last week, the Dow Jones Industrial Average added 1.6 percent, the Standard & Poor's 500 Index gained 1.3 percent, as did the Nasdaq Composite Index. US markets, which were closed on December 25, will also be closed for the New Year's holiday on January 1.

The past year has proven a strong one for Wall Street. The Dow, which closed at a record high on Thursday, has gained 29 percent in 2013, while the S&P 500, also ending the Thursday session at an all-time high, has climbed 32 percent.

The coming year will provide further gains, analysts predict, though they will fall short of the ones seen in 2013. The S&P 500 will end 2014 at 1,950, according to the average of 20 estimates compiled by Bloomberg, which would be a 5.9 percent increase over the next 12 months.

The latest Reuters poll showed analysts expect the S&P 500 to rise to 1,925 by the end of 2014, or a 4.5 percent advance from current levels.

"I don't see why stocks can't have a reasonable year in 2014, given that the global economy does seem to very slowly improve and Fed has started a tapering program," Robert Landry, the San Antonio-based executive director and money manager at USAA Investments, told Bloomberg News.

"There are some things in place to suggest it could be a decent year for stocks but not on the magnitude we've seen this year."

US Treasuries declined last week, pushing yields on the 10-year bond 11 basis points higher to 3 percent. Equities might follow suit.

"The 10-year Treasury yield is again back at 3 percent because of the Fed," Mark Grant, managing director at Southwest Securities in Fort Lauderdale, Florida, told Bloomberg.

"The bond market is giving us a signal that the Fed's tapering is going to impact interest rates, probably making them go even higher. The bond market leads the equity market about 99 percent of the time, so I'm also expecting a correction in US equities after the first of the year."

In the coming days the latest reports on the US economy will arrive in the form of the pending home sales index and Dallas Fed manufacturing survey, on Monday; the S&P Case-Shiller home price indices, Chicago PMI, and consumer confidence, due Tuesday; the Gallup US job creation index, weekly jobless claims, PMI and ISM manufacturing indices, and construction spending, due Thursday, and motor vehicle sales, on Friday.

In Europe, the Stoxx 600 Index gained 2 percent last week as most markets were closed for at least two days. France's CAC 40 and Germany's DAX both also advanced 2 percent, while the UK's FTSE 100 climbed 2.2 percent.

European Central Bank President Mario Draghi said he did not see any need at the moment for further lowering the euro-zone's benchmark interest rate, Der Spiegel reported on Saturday, citing an interview.

"At the moment we see no immediate need for action," Draghi said, according to Der Spiegel. "The crisis isn't over, but there are many encouraging signs."

The latest data due here in the coming days include reports on euro-zone PMI manufacturing, due Thursday.


Wed, 11 Jul 2018
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World week ahead: Bernanke to kick-start 2014