World Week Ahead: Momentum gathers
By Margreet Dietz
Feb. 4 (BusinessDesk) – Optimism rules on the world's largest economy.
Last week’s slew of reports underpinned the cautiously upbeat outlook for the US, even though one showed an unexpected
contraction in American GDP in the fourth quarter.
On Friday, data showed that US payrolls rose 157,000 in January, with a substantially revised 196,000 gain in the prior
month and a 247,000 climb in November. The jobless rate rose to 7.9 percent from 7.8 percent. Separate reports provided
evidence of better-than-expected strength in manufacturing and a surprise gain in confidence of the US consumer.
“All the data seems to keep pointing to a slowly, steadily improving economy," Eric Kuby, chief investment officer at
North Star Investment Management Corp in Chicago, told Reuters.
Indeed, Federal Reserve Bank of St. Louis President James Bullard said he expects growth will accelerate enough to let
the central bank reduce its asset purchases as early as the middle of the year.
“We should think about tapering or adjusting the program,” Bullard told Bloomberg in an interview on Friday. “If you get
some good data for a couple of months, maybe you’d say, ‘Okay, we go back to US$75 billion per month instead of US$85
billion or something like that.’”
Fresh economic clues over the coming days will come in the form of reports on factory orders, due Monday, the ISM
non-manufacturing index, due Tuesday, productivity and costs, due Thursday, as well as international and wholesale
trade, both due Friday.
Overall, US corporate earnings have also provided investors enough reason to pile more funds into stocks, helping the
Standard & Poor's 500 Index to its best January since 1997.
The S 500 climbed 5 percent last month.
The index may rise to 1,543 by year-end, compared with its October 2007 record of 1,565.15, according to the average of
15 strategists surveyed by Bloomberg on January 22. On Friday, the S 500 closed at 1,513.17.
The Dow Jones Industrial Average also continued its ascent to another five-year high, closing at 14,009.79 on Friday.
“There’s a lot of momentum for stocks even after such a good start to the year,” Paul Zemsky, the New York-based head of
asset allocation for ING Investment Management, told Bloomberg. “Earnings are strong, the economies around the world are
bottoming and valuations are attractive.”
About 73 percent of the 254 S 500 companies that have released results so far this earnings season have beaten profit projections, and 65 percent
have beaten sales estimates, according to Bloomberg.
Overall, S 500 fourth-quarter earnings are estimated to have increased 4.4 percent, according to Thomson Reuters data, up from a
1.9 percent forecast at the start of the earnings season but falling short of the 9.9 percent profit growth forecast on
October 1.
Walt Disney, Coca-Cola Enterprises and Visa are among the companies reporting their latest earnings this week.
The spotlight will also be on Dell. A buyout consortium led by founder and CEO Michael Dell and private equity firm
Silver Lake is negotiating to take Dell private at US$13 to US$14 per share, Reuters reported, citing people familiar
with the matter. The deal could top $US24 billion. On Friday, the stock closed at US$13.63.
In Europe, the benchmark Stoxx 600 Index slid 0.5 percent last week.
Investors will eye a meeting by the European Central Bank on February 7. The ECB is widely expected to hold its
benchmark interest rate at 0.75 percent.
Bank of England policy makers, meeting the same day, are also seen keeping the key rate at 0.50 percent.
Late this week European Union leaders also return to the table in a renewed effort to seek an agreement on the region's
budget for 2014-2020 after failing to reach agreement in November.
(BusinessDesk)