World Week Ahead Fed in the limelight

Federal Reserve policy makers will draw the limelight as they start a two-day meeting on Tuesday after which they are expected to signal ongoing stimulus to help the US economy get over the speed bump created by lawmakers' fiscal battle earlier this month.

First, the focus will be on Apple which is scheduled to report its latest earnings on Monday. Shares in the iPhone maker have risen more than 10 percent in the last month.

On Friday, shares in Amazon, up 9 percent, and Microsoft, up 6 percent, surged after each tech giant's earnings surpassed expectations, helping to boost the Standard & Poor's 500 Index to its highest close in history.

So far, almost half of the S&P 500 companies have reported their third-quarter results, and 69 percent have exceeded Thomson Reuters I/B/E/S estimates.

In the past week, the Standard & Poor's 500 Index advanced 0.9 percent, while the Dow Jones Industrial Average rose 1.1 percent, and the Nasdaq Composite Index increased 0.7 percent.

Expectations that the American central bank will extend its fuelling of the economy into next year also helped lift Treasuries. That might bolster demand for the US$96 billion worth of planned government bond sales this week.

The benchmark 10-year yield dropped seven basis points last week to settle at 2.51 percent.

"The market's pricing in a later Fed hike, a slower hiking cycle and a later start to tapering," Shyam Rajan, an interest-rate strategist at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Fed, told Bloomberg News.

The US dollar weakened 0.8 percent against the euro, while dropping 0.3 percent against the yen in the past five days. And the American currency might slide further.

"We are still seeing a gradual weakening of the [US] dollar, reflecting people pushing back their expectations for the Fed tapering," Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London, told Bloomberg News. "Heading into year-end, given that the Fed looks unlikely to begin tapering this year, there's some scope for further downside in the dollar."

It is clear that the political wrangling over US government funding made the American consumer more cautious. Consumer confidence took a hit in October. The Thomson Reuters/University of Michigan final consumer sentiment index dropped to 73.2, the lowest this year and down from 77.5 in September.

That does not bode well for the all-important holiday retail sales.

"This could cast a dark cloud over the year-end holiday season in terms of consumer spending," Jennifer Lee, an economist at BMO Capital Markets in Toronto, told Reuters.

Among other companies reporting results in the coming days: Facebook, Merck, Aetna, United States Steel, Metlife, General Motors, Exxon Mobil, and Time Warner Cable.

On the economic front are reports on industrial production, the pending home sales index, and the Dallas Fed manufacturing survey, due on Monday; the producer price index, retail sales, the S&P Case-Shiller home price indices, and consumer confidence, due on Tuesday; ADP employment report, and consumer price index, due on Wednesday; weekly jobless claims on Thursday; and the PMI and ISM manufacturing indices, due on Friday.

On Friday, St Louis Fed Bank President James Bullard will give a speech on the economy and monetary policy in St Louis, while Minneapolis Fed Bank President Narayana Kocherlakota will provide opening remarks at a health conference in St. Paul.

In Europe, the Stoxx 600 Index rose 0.5 percent in the past five days.

European Central Bank board member Benoit Coeure will speak about East Asia lessons for the euro area at an Asia Europe Economic Forum in Beijing on Monday.

(BusinessDesk)