Pos­i­tive re­sults drive strong US data

Financial Mirror (Cyprus) - - FRONT PAGE -

A month ago, I said in this very col­umn that U.S. eco­nomic data was con­flict­ing, al­beit with an over­rid­ing bullish sen­ti­ment. Now it seems that the bulls are leav­ing no room for doubt as the econ­omy continues to pick up pace.

At the close of last week, the Stan­dard & Poor 500 In­dex was just one trad­ing day away from cel­e­brat­ing its long­est stretch of quar­terly ad­vances in 16 years, af­ter reach­ing an all-time high of 1,962.87 on June 20. Among the soar­ing Amer­i­can Stock prices, Net­flix and Face­book both ad­vanced more than 12% dur­ing the quar­ter, and en­ergy com­pa­nies in par­tic­u­lar saw tremen­dous gains amid the un­rest in Iraq and the Ukraine, and the re­sult­ing con­cerns about oil sup­ply.

So what’s driv­ing re­sults? Re­cent data re­leases have been con­sis­tently pos­i­tive, from em­ploy­ment to hous­ing data. In­deed, it is the fact mul­ti­ple sec­tors of the econ­omy are thriv­ing that has cre­ated the op­ti­mistic mar­ket out­look.

For Janet Yellen, the Fed Chair, it is the com­bi­na­tion of an ac­com­moda­tive mon­e­tary pol­icy along with ris­ing property and eq­uity prices, and the im­prov­ing global fore­casts, that will lead to above-trend growth.

Ad­mit­tedly, you could point out the fact that yields are fall­ing glob­ally which is putting pres­sure on U.S. in­ter­est rates. You could re­mark that pol­icy mak­ers at the cen­tral bank are busy de­bat­ing how long to keep the bor­row­ing costs low, and just 2 weeks ago cut the long-term tar­get in­ter­est rate es­ti­mate from 4% to 3.75%.

Yet, look­ing at the wider pic­ture, these facts do not over­ride the mount­ing ev­i­dence to sug­gest that the U.S. econ­omy is re­bound­ing. I would ar­gue that the first quar­ter con­trac­tion and rip­pling im­pact of the ter­ri­ble weather now seem to be firmly be­hind us.

Up­com­ing data re­leases are ex­pected to af­firm the cur­rent bullish out­look. Banc De Bi­nary’s an­a­lysts are pre­dict­ing that the NFP em­ploy­ment data re­lease on Thurs­day will re­veal that Amer­i­can firms are con­tin­u­ing to hire steadily.

If cor­rect,

this

could

be

the

fifth con­sec­u­tive month of job gains ex­ceed­ing 200,000, a loud and clear sign of eco­nomic growth. Ad­di­tion­ally, fore­casts for the im­por­tant ISM man­u­fac­tur­ing re­ports sug­gest ac­cel­er­at­ing growth, which would be at­trib­ut­able to ris­ing trade and in­vest­ment.

At a time of on­go­ing po­lit­i­cal tur­moil in the Ukraine and across the Mid­dle East, in­vestors have good rea­son to be cau­tious. How­ever, the world’s largest econ­omy seems to be as strong as we can rea­son­ably ex­pect. While short-term traders ride the bullish waves of the up­com­ing data re­leases, long- term in­vestors should keep a close watch on the un­fold­ing global events, but can at least be re­as­sured that for now, stocks and in­di­ca­tors of growth are steady.

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