World Week Ahead: Third quarter earnings will set tone for Wall Street

The latest US quarterly earnings season and a speech by Federal Reserve chairwoman Janet Yellen on Friday, days after the minutes from the September meeting are released, are poised to dominate this week.

Mrs Yellen will speak at a conference in Boston on Friday, in the wake of a Labor Department report last Friday that underpinned bets the Fed will raise rates before the end of the year. US employers added 156,000 workers in September, compared with an upwardly revised 167,000 in August.

In a Reuters poll after the September jobs data, 14 of 15 primary dealers, banks that do business directly with the Fed, forecast a rate hike at the central bank's December meeting. This compared with 13 of 14 dealers in a September 2 poll following the August jobs report.

Meanwhile, traders now are pricing a 64% chance of an increase in December, up from 53% the previous week, and a 17% chance of a hike as early as November, according to Bloomberg.

With the heightening prospect of a rate rise, Wall Street retreated on Friday. The Dow Jones Industrial Average fell 0.2%, the Standard & Poor's 500 Index retreated 0.3% and the Nasdaq Composite Index also slid 0.3%.

US dollar strengthens
The US dollar, however, strengthened. It will rise to $US1.05 against the euro by the end of the year from $US1.1201 on Friday, according to Deutsche Bank's forecasts.

"The dollar will get reasonable support into that period of time between the elections and the Fed tightening," Alan Ruskin, global co-head of foreign-exchange research in New York at Deutsche Bank, told Bloomberg.

"It will be hard to shift the market expectations in terms of a Fed rate hike in December."

Before Mrs Yellen, other Fed officials scheduled to speak this week include Chicago Fed President Charles Evans today, New York Fed's William Dudley and Kansas City Fed's Esther George on Wednesday, Philadelphia Fed's Patrick Harder on Thursday and Boston Fed's Eric Rosengren on Friday.

Third quarter earnings under way
Meanwhile, Alcoa, Citigroup, JPMorgan Chase and Wells Fargo are among companies to kickstart the latest US quarterly earnings season.

"If there's something that can help the outlook for earnings, then it's going to be good news for the stock market. It is the most important variable," Hugh Johnson, chief investment officer of Hugh Johnson Advisors in Albany, New York, told Reuters.

"What's needed is something that's going to make this look undervalued."

Last week, the Dow dropped 0.4%, while the S&P 500 slid 0.7% and the Nasdaq declined 0.4%.

The latest clues on the US economic state of affairs will show up in the form of reports on the labour market conditions index, due today; the NFIB small business optimism index, due Tuesday; weekly jobless claims and import and export prices, due Thursday; as well as the producer price index, retail sales, business inventories, and consumer sentiment, due Friday.

In Europe, the Stoxx 600 Index fell 0.9% on Friday. The pound sank, hitting fresh three-decade lows on Friday, amid fresh concerns about the impact of a 'hard' Brexit on the nation's economy.

Bank of England Governor Mark Carney is set to speak on Friday.

(BusinessDesk)