World Week Ahead: Fed to rule on end of QE3 on Tuesday

A US Federal Reserve meeting and a slew of earnings including from Exxon Mobil and Facebook will help set the tone in the coming days after Wall Street posted  the largest rally since early 2013 last week.

US policy makers begin a two-day meeting on Tuesday in Washington and are expected to announce plans to end the monthly bond-buying program credited with reviving the nation’s economy.

Among the companies set to report quarterly results in the coming days are DuPont, Merck, Pfizer, Visa, Starbucks, and Chevron.

Solid earnings helped lift Wall Street again on Friday. Shares of Microsoft climbed 2.5 percent after its latest quarterly sales surpassed expectations.

On Wall Street last week, the Dow Jones Industrial Average climbed 2.6 percent, the Standard & Poor’s 500 Index rallied 4.1 percent, while the Nasdaq Composite Index jumped 5.3 percent.

Last week’s gains helped lift the S&P 500’s gain for 2014 so far to 8 percent.

“Earnings have been very good,” Mark Spellman, a portfolio manager who helps oversee US$4.3 billion at Alpine Funds in Purchase, New York, told Bloomberg News. “A large part of this market rise since the decline has been on the idea the Fed will be here to protect you.”

Of course there were exceptions. Shares of Amazon dropped 8.3 percent after the company forecast holiday sales that fell short of the mark.

In terms of economic reports, this week will offer more data on the housing market. Last Friday, a Commerce Department report showed home sales rose 0.2 percent last month to a seasonally adjusted annual rate of 467,000 units, the highest in six years. Still, the August rate was revised lower to 466,000 units, down from 504,000 units.

"We expect the housing market recovery to remain relatively gradual over the coming months," Gennadiy Goldberg, an economist at TD Securities in New York, told Reuters.

The pending home sales index is due Monday, followed by the S&P Case-Shiller home price index on Tuesday.

Other data scheduled for release include the preliminary PMI for services, and the Dallas Fed manufacturing survey, due today; durable goods orders, consumer confidence, the Richmond Fed manufacturing index, due Tuesday; GDP, weekly and jobless claims, due Thursday; as well as the employment cost Index, Chicago PMI, and consumer sentiment, due Friday.

As the mood on Wall Street brightened, US Treasuries recorded their first weekly decline in six weeks.

“The bias is generally for higher yields,” Adrian Miller, director of fixed-income strategies at GMP Securities n New York, told Bloomberg News because of the pending end of the Fed’s bond buys and because both data and earnings show “the economy continues to move forward.”

Oil’s outlook, however, hasn’t improved and the rout may yet renew. West Texas Intermediate for December delivery shed 1.3 percent on Friday, bringing its drop for the week to 2.1 percent, amid expectations that Saudi Arabia, OPEC's largest oil producer, won't cut production.

"Saudi Arabia ... doesn't mind oil going a little bit lower," Tariq Zahir, an analyst at Tyche Capital Advisers, told Reuters. "With all the production increase in the United States, we are their biggest competitor right now. But they have enough cash to deal with prices going lower."

In Europe, the Stoxx 600 Index posted a 2.7 percent gain last week, while the FTSE 100 Index rose 1.2 percent.

Here, eyes are on the results of the European Central Bank’s stress tests of the eurozone's lenders, scheduled to be released today, local time.

Twenty-five of 130 banks tested are expected to fail, though many of those have already acted to shore up their finances, while 10 might still need extra capital, according to the Financial Times on Friday, citing sources familiar with the matter.

(BusinessDesk)