Cen­tral bankers hold the key as mar­ket awaits jobs re­port

The Pak Banker - - COMPANIES/BOSS -

Stocks are rid­ing high on the prospect that cen­tral bankers will take ac­tion in the week ahead to kick start the econ­omy and stem the euro zone's debt cri­sis.

Both the Fed­eral Re­serve and the Euro­pean Cen­tral Bank meet, and while they may take some ac­tion, nei­ther is ex­pected to de­liver the whole menu of items looked for by mar­kets.

At the end of the week, the July em­ploy­ment re­port looms large and is ex­pected to show that just 100,000 jobs were added this month in a slow grow­ing US econ­omy.

There are also earn­ings from about a fifth of the S&P 500 and Gen­eral Mo­tors, AIG, Proc­ter and Gam­ble, Kraft, Time Warner, Berk­shire Hath­away and MasterCard are among the com­pa­nies re­port­ing. Auto mak­ers also re­port monthly sales, and chain stores re­port their July sales.

Most Fed watch­ers do not ex­pect the Fed to an­nounce a new quan­ti­ta­tive eas­ing, or as­set pur­chase pro­gram, but it could take smaller steps and lay the ground­work for more eas­ing later in the year. The ECB, re­ported to be con­sid­er­ing a range of ac­tions, may take some steps at its meet­ing to­ward re­solv­ing its prob­lems, but not all the steps im­me­di­ately looked for by mar­kets. There were news re­ports that ECB Pres­i­dent Mario Draghi was dis­cussing a rate cut, a new liq­uid­ity pro­gram, and a plan to give a bank­ing li­cense to its bailout fund.

"There's a risk that the mar­ket may ex­pect the ECB to be act­ing in­stan­ta­neously next week when in fact it does take time for some of these things to be put in place," said Robert Sinche, head of global for­eign ex­change strat­egy at RBS. Euro­pean pol­icy mak­ers would need to be in­volved with some of the changes, such as giv­ing bank sta­tus to the Euro­pean Sta­bil­ity Mech­a­nism so that it could di­rectly aid banks. "I think that again the mar­kets need to be en­cour­aged by the fact that they're at­tempt­ing to ad­dress new ground. And the ground has the po­ten­tial to be very in­flu­en­tial go­ing for­ward. But we also need to be re­al­is­tic about how long these things take," Sinche said.

Stocks ended the week with strong gains, af­ter start­ing the week gripped by wor­ries that the Span­ish sov­er­eign would need a bailout, and by as­so­ci­a­tion Italy might as well. Risk as­sets sold off, and in­vestors ran to the safety of bunds and Trea­surys, send­ing yields to record lows across the curve. At the same time yields on Span­ish debt shot higher, with the five year sur­pass­ing the 10-year, a sign of stress.

But Draghi turned the tide with a com­ments that the ECB stood ready to do what­ever it takes to sup­port the euro, and that the ECB's ac­tion would be enough. Ger­man Chan­cel­lor An­gela Merkel and French Pres­i­dent Fran­cois Hol­lande, in a joint, com­mu­nique, said they too were pre­pared to sup­port the euro.

Re­ports that Draghi was speak­ing to ECB coun­cil mem­bers about tak­ing ac­tion helped spur an even big­ger rally. There were also re­ports that Trea­sury Sec­re­tary Ti­mothy Gei­th­ner is ex­pected to meet with Draghi, giv­ing traders more con­fi­dence that some ac­tions are be­ing planned. The Dow fin­ished the week nearly 2 per­cent higher, at 13,075, above 13,000 for the first time since May. The S&P 500 gained 1.7 per­cent to 1385, its high­est level since May 3. The Nas­daq rose 1.1 per­cent to 2958.

The rally came at the end of the week that saw some ma­jor earn­ings dis­ap­point­ments, in­clud­ing from Wall Street fa­vorite Ap­ple, as well as Face­book, Exxon Mo­bil, DuPont and dozens of oth­ers. Of the al­most 60 per­cent of the S&P com­pa­nies re­port­ing so far, 60 per­cent have missed rev­enue es­ti­mates, though 67 per­cent beat on earn­ings.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.