World Week Ahead: Eyes on US retail sales

A key focus this week is the US retail sales report on Thursday because it is seen as a crucial indicator for the US Federal Reserve of whether the American consumer could weather an interest rate increase. 

A Labor Department report on Friday backed bets the Fed will lift rates this year, possibly as early as September, even as the data fell short of expectations. US employers added 215,000 jobs in July while the unemployment rate held at 5.3%. June’s increase was upwardly revised to 231,000.

“Trend job growth is rock solid,” Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, which correctly forecast the increase in payrolls, told Bloomberg. “It’s more than sufficient to continue to chip away at the slack that’s left in the job market.”

Although average hourly earnings rose less than expected, increasing 2.1% from a year earlier, analysts concurred that a Fed rate hike is in the cards.

"We view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike," Rob Martin, an economist at Barclays in New York, told Reuters. "The bar for not moving now is much higher.”

Wall Street closed lower on Friday as a result. The Dow Jones Industrial Average fell 0.27%, the Standard & Poor’s 500 Index weakened 0.29%, while the Nasdaq Composite Index retreated 0.26%.

"It’s enough to keep the Fed on track to raise rates in September but it’s not enough to end the debate,” John Briggs, head of cross asset strategy at RBS Securities in Stamford, Connecticut, told Reuters. 

Policy makers might offer fresh clues on the potential timing of a rate hike. Atlanta Fed President Dennis Lockhart speaks in Atlanta today, while New York Fed President William Dudley is scheduled to give a talk in Rochester, New York, on Wednesday.

The latest US economic data scheduled for release this week include NFIB small business index, productivity and costs, and wholesale trade, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, import and export prices, and business inventories, due Thursday; producer price index, industrial production and consumer sentiment, due Friday.

For the week on Wall Street, the Dow fell 1.8%, the S&P 500 declined 1.3%, while the Nasdaq shed 1.7%.

Kraft Heinz, Macy's, Cisco, Alibaba Group and Nestlé are among companies reporting earnings in the coming days. 

On Friday, shares of Cablevision Systems dropped 2.7%, the latest media stock to suffer from investors’ concern about the outlook for the industry, after the company presented its latest quarterly earnings report.

Yet, shares of Nvidia soared 12.4% on Friday, a day after the chipmaker posted an unexpected increase in quarterly revenue.

In Europe, the Stoxx 600 Index fell 0.9% on Friday, reducing its gain for the week to 0.2 %. As in the US, media stocks there were hit too by concern about the sector’s outlook.

The latest data slated for release include the euro-zone Sentix investor confidence, due today; German and eurozone ZEW sentiment, due Tuesday; eurozone industrial production, due Wednesday; Germany’s consumer price index, due Thursday; and euro-zone gross domestic product, as well as eurozone CPI, due Friday. 

Oil prices continued their decline, falling for a sixth straight week, with both Brent and US crude sliding 7% last week, amid concern about worldwide oversupply.

“The fall in oil is draining confidence out of the markets,” Wadah Al Taha, the Dubai-based chief investment officer of Al Zarooni Group, told Bloomberg. “With oil staying below the $US50 barrel level all of last week, there are doubts about a recovery in demand soon.”

Over the weekend, fresh data underpinned concern about China’s economy. The producer price index dropped a larger-than-expected 5.4% in July from a year earlier, according to China’s National Statistics Bureau on Sunday. It was the largest drop since October 2009. A separate report on Saturday showed China’s exports plunged a bigger-than-expected 8.3% in July.

(BusinessDesk)