World week ahead: central bank watch amid records

Wall Street seems destined to push to fresh highs again this week as investors continue to bet on both an improving economic outlook and a solid commitment from the US Federal Reserve to counter any weakness.

On Friday, the Dow Jones industrial average rose 0.80 percent to close at a record 15,354.40, while the Standard & Poor's 500 Index added 0.95 percent to finish at a record 1666.12. The Nasdaq Composite Index gained 0.97 percent to end at 3498.97, its highest close in more than 12 years.

JPMorgan raised its year-end target for the S&P 500 to 1715 from 1580, implying a gain of just under 3.5 percent for the index for the rest of the year, Reuters reported.

"We realise investors are apprehensive about making fresh money purchases, but we see the risk/reward as particularly attractive in Technology, Healthcare, and Financials," says the client note from JPMorgan's US equity strategist Thomas Lee.

Despite some inconsistent economic data last week, Wall Street's upward momentum appears intact. In the past five days, the Dow gained 1.6 percent, the S&P 500 climbed 2.1 percent, while the Nasdaq Composite Index rose 1.8 percent.

And for the year so far, both the Dow and the S&P 500 have added about 17 percent, while the Nasdaq is almost 16 percent higher.

Stronger-than-expected data on US consumer sentiment, which leapt to the highest in almost six years, and on future economic activity lifted the mood on Friday.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 83.7 in May from 76.4 in April. Separately, an index of US leading indicators rose 0.6 percent in April.

"We are still recovering," Doreen Mogavero, CEO of Mogavero, Lee & Co in New York, told Reuters. "The US [market], for all its woes, is still the best place to be at this moment."

It is not just stocks that are benefiting from this seeming dichotomy: the US dollar is powering ever higher and commodity currencies appear destined to extend their losses. Gold also is poised to drop still further.

On the currency markets, the greenback is back in favour. "Technically, [the US] dollar's rally has been accelerating as seen in daily charts against other major currencies and we'd expect such strength to continue," according to ActionForex.com.

The price of gold may fall to $US1100 in a year as the precious metal "is going to get crushed", Ric Deverell, head of commodities research at Credit Suisse Group, told reporters in London on Friday.

That creates opportunity, too.

"When the fundamentals are the same but the price lower, it strikes me that gold is on sale," Adrian Day, who manages about $US140 million of assets as the president of Adrian Day Asset Management, told Bloomberg.

This Wednesday will offer investors more insight on what the world's top central bankers are thinking. There is a Bank of Japan rate decision, minutes from the Bank of England and the Fed's policy committee, and Fed chairman Ben Bernanke will be giving testimony to Congress.

While the US economic calendar is light, there's a slew of PMI data from Europe with a continuing watch on the divergence between Germany and the rest of the continent.

Europe's Stoxx 600 Index gained 1.2 percent in the past five days.

In the US, investors will be looking for signs of strength in reports on the housing market after last week's disappointing data. Existing home sales are due on Wednesday, followed by the FHFA house price index and new home sales on Thursday.

Other clues on the American economy will arrive in the form of the Chicago Fed national activity index overnight, the PMI manufacturing index flash on Thursday and durable goods orders on Friday.

Companies releasing their latest earnings this week include Hewlett-Packard, Home Depot, Lowe's, Best Buy, Target, Gap and Abercrombie & Fitch.

(BusinessDesk)