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World Week Ahead: US earnings, ECB rate decision

Dow Jones Industrial Average rose 1.8%.

Margreet Dietz
Mon, 18 Apr 2016

After markets rallied on better-than-expected corporate earnings, notably from US banks, investors will eye more results including from Morgan Stanley, IBM and Yahoo as well as a European Central Bank policy meeting.

Last week the Dow Jones Industrial Average rose 1.8%, the Standard & Poor's 500 Index gained 1.6%, while the Nasdaq Composite Index climbed 1.8%.

"Earnings are off to a very healthy start, financials set a positive tone," Joe Kinahan, chief strategist at TD Ameritrade Holding, told Bloomberg. "For the market to rally, financials have to be performing and financials performed [last] week."

Morgan Stanley is the next US bank to report earnings, today, followed by Goldman Sachs on Tuesday. This week will also offer results from Netflix, Intel, Coca-Cola, Alphabet, Starbucks, and Caterpillar.

Even as this US earnings season is expected to be the worst since the financial crisis in 2008, many see reasons to be optimistic.

The low point of the US profit downturn may have been at the end of last year, based on trailing fourth-quarter data, Richard Bernstein, chief executive and chief investment officer at Richard Bernstein Advisors in New York, told Reuters. Bernstein is  energy, materials, financials and technology sectors for the rebound.

Investors will eye US Federal Reserve officials speaking today, New York Fed president William Dudley as well Minneapolis Fed's Neel Kashkari and Boston Fed's Eric Rosengren.

The Federal Open Market Committee is set to start its next two-day meeting on April 26, and expectations for interest rate increases have eased in recent weeks, one reason the greenback has fallen to its lowest in nine months.

Last Friday treasuries rose, pushing yields on the benchmark 10-year note four basis points lower to 1.75%, after a surprise drop in March US manufacturing output.

US yields will remain low because of "weak data, the Fed not raising rates and negative rates globally," Ray Remy, head of fixed income in New York at Daiwa Capital Markets America, one of 22 primary dealers that trade with the Fed, told Bloomberg.

Economic data set for release this week include the housing market index, today; housing starts, due Tuesday; existing home sales, due Wednesday; weekly jobless claims, Philadelphia Fed business outlook survey, Chicago Fed national activity index, leading indicators, and the FHFA house price index, due Thursday; as well as the preliminary PMI manufacturing index, due Friday.

"The first quarter was clearly a dud but there are reasons to be optimistic," Ryan Sweet, senior economist at Moody's Analytics in Westchester, Pennsylvania, told Reuters. "There are still measurement issues, with the residual seasonality in GDP, and history shows that reverses in the second quarter."

In Europe, the Stoxx 600 Index climbed 3.3% last week, stemming four straight weekly slides.

On Thursday, the European Central Bank is set to announce its latest policy decision, followed by a press conference with President Mario Draghi.

Last month the ECB lowered its key interest rates and increased its bond-buying programme in an effort to stoke growth and inflation.

"The problem for many central banks is that the market is assuming that, to some extent, they have reached their limit and have run out of ammunition," Manuel Oliveri, a currency strategist at Credit Agricole's corporate and investment-banking unit in London, told Bloomberg. "Markets do not fully understand or perceive well the most recent policy steps by central banks."


Margreet Dietz
Mon, 18 Apr 2016
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World Week Ahead: US earnings, ECB rate decision