Week ahead features Bernanke’s testimony, Beige Book, and corporate earnings...

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This week will feature retail sales, housing and inflation data alongside the Federal Reserve’s Beige Book. Federal Reserve Chairman Ben Bernanke`s will testify before the congress in the semiannual testimony once known as the Humphrey-Hawkins report.

Bernanke will testify before on the House side Wednesday at 10:00 a.m. ET and then on the Senate side Thursday at 10:00 a.m. ET. The remarks come on the heels of the surprising minutes of the last meeting of the Federal Open Market Committee, which showed a more sharply divided Fed on the issue of asset purchase timing than had been previously understood.

The testimony could, however, further clarify where the Fed stands on its expected path for asset purchases following the last employment report, which analysts say all but guarantees a tapering of Fed purchases in September. The Federal Reserve will also release its Beige Book report on the economy Wednesday at 2:00 p.m. ET.

Housing data to be released next week include June housing starts Wednesday at 8:30 a.m. ET and the National Association of Home Builders` July housing market index Tuesday at 10:00 a.m. ET.
Housing starts is currently the most important indicator of where the housing market is headed - supply constraints are currently holding up sales and boosting prices, so more construction is really the only way the market can move forward. Both higher construction starts and building permits are forecast for the month.

June`s retail sales report, to be released Monday at 8:30 a.m. ET, is expected to post another month of modest core sales, right in line with the subdued growth expectations for the second quarter. Gasoline sales will also likely boost the headline.

Regional manufacturing surveys to be released in the week ahead include the Philadelphia Federal Reserve July business outlook survey and the New York Federal Reserve`s July Empire State manufacturing survey Monday at 8:30 a.m. ET. The surveys are expected to dip slightly, though remain positive, after both posted surprise gains in June. Regional surveys, however, are very difficult to accurately forecast.

The June Consumer Price Index will also be released Tuesday at 8:30 a.m. ET, and is expected to show another modest gain in core prices. Inflation data has taken a back seat to jobs data as far as the Federal Reserve is concerned, but any further declines in the year-over-year rate could change the discussion. Initial jobless claims, to be released Thursday at 8:30 a.m. ET, should likely be disregarded due to the noted seasonal adjustment difficulties in the month of July. Department of Labor officials said the surprise jump to 360,000 in the last release is likely due to this seasonal volatility.

Other data to be released over the week include June industrial production Tuesday at 9:15 a.m. ET, June Treasury International Capital flows Tuesday at 9:00 a.m. ET, June business inventories Monday at 10:00 a.m. ET, June leading economic indicators Thursday at 10:00 a.m. ET, and the Mortgage Bankers Association`s mortgage applications index Wednesday at 7:00 a.m. ET.

Earnings

Wall Street is quietly optimistic given earnings forecasts have been knocked down quite substantially in the lead-in, suggesting the potential for upside surprise. After JP Morgan (Dow) and Wells Fargo Friday, next week we`ll see Dow components Johnson & Johnson, Coca-Cola, American Express, Bank of America, Intel, IBM, Microsoft, Verizon and General Electric along with Goldman Sachs, Yahoo, Google and Morgan Stanley.

Dell Inc. shareholders will vote on the proposed $24.4 billion buyout of the personal-computer maker by founder Michael Dell and Silver Lake Management LLC.

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News Source: www.marketwatch.com  

A Make or Break Week Ahead for the Stock Market...

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  It's make-or-break time for the first-quarter earnings season, and it comes just as the stock market is showing signs of strain.About 170 S&P 500 and 10 Dow companies report earnings in the week ahead, and they include everything from tech icon Apple to industrial names like Caterpillar and energy companies like giant Exxon. As of Friday, a fifth of the S&P 500 had reported, and two-thirds had better-than-expected earnings. But an unusually high amount—57 percent—missed their top-line revenue estimates, according to Thomson Reuters.

That's a cause for concern, since stocks traded in one of the most volatile seesaw patterns of the year in the past week, as worries about global growth increased amid a dramatic sell-off in commodities. The Dow finished its worst week this year 2.1 percent lower at 14,547, and the S&P 500 was down 2.1 percent at 1,555. The Nasdaq was down 2.7 percent for the week, even with Friday's big gain of 1.3 percent on the back of a tech rally.


The week ahead also has a light but important economic calendar, including home sales data Monday and Tuesday, durable goods Wednesday, and the first look at first-quarter GDP Friday. Even though it is a reading of past activity, first-quarter GDP is important since, at estimated 3 percent growth, the rate is about double what is expected for the current quarter. Traders have also been fixated on events surrounding the Boston Marathon bombers, though it was not seen as a market factor.

"I think this rally is a little weary," said Art Cashin, director of floor operations at UBS. "The 'buy the dips' have been in and they bought most of the dips. The question is will they continue, or is the market getting ready for the spring swoon everyone is talking about."


Cashin said the Dow broke an important trend line at 14,500 Friday as IBM had its worst day in eight years, but it rose back above that level by the end of the day. The S&P struggled at its 50-day moving average Thursday, but it too got about a dozen points above it by Friday afternoon. Commodities markets were calmer by the end of the week, but gold lost 7 percent in the past week, sliver lost 12.8 percent, copper lost 6 percent and oil lost 3.6 percent.


"By any sort of measure, we're kind of overdue for some sort of a pullback, and maybe we're finally going to get it," said Bill Stone, chief investment strategist at PNC Wealth Management. Year to date, the S&P is up 9 percent and has not had a significant pullback. He noted that the economic data has been disappointing.


"Once you had a market that moved up like this one has, expectations are really your enemy. We're not meeting expectations … then you throw in earnings season. Earnings, I would argue, are coming in better than expected. Underneath the surface is something that's not quite so healthy," he said. "They're struggling on the top line, the revenue side. That's indicative of a global economy growing below trend." The commodities sell-off is also signaling a global weakening, and it accelerated when China released disappointing GDP data Monday.

Gina Martin Adams, institutional equity strategist at Wells Fargo Securities, has also been expecting a pullback. "I still think we're in some sort of process of trading a top. It's hard for me to say," she said. "There has been enough disturbance to suggest the trend is now in question, which is the first time you can say that this year. Certainly the factors have been lining up."
"Every April we have this. It's scary how the market is trending exactly as it has for the last four years running," she said. "There is this confluence of factors. The fundamental case—everyone was excited about the economy improving, but that story broke down. The earnings are not improving. The commodities complex looks just like last year."


Even though economists expect a weaker economy, they do not expect it to be as soft as last year, and stock strategists also expect the market to rebound later in the year, after any sell-off.

Adams said seasonally, April can actually be a good month for stocks so they may hold on, but in the next few weeks, there could be a downdraft as there was in the past three years. "May is when you get a little worried … we've got a sideways trend in place," she said, adding it's also possible there could be a sideways correction. That means stocks would grind in within a range, instead of selling off.

This makes the earnings season particularly key, as traders look for clues about the extent of the soft spot and its impact on corporate profits.

"The next two weeks are really important. That's when the bulk of the market cap reports. They will be extremely important. There's a limited amount of economic data to consume. The huge reports come at the beginning of the month," when April employment data is released, Adams said.

She added that is especially watching industrials and technology. "Those are the areas where the market is expecting the greatest weakness. If there are areas where there could be a surprise and guide higher, those could be the areas. They should be the areas where the turnaround story could occur, should it show up. I'd like to see that, but it's not in my forecast."


Industrial companies GE and Honeywell both reported earnings that slightly beat expectations Friday. GE, however, reduced its forward guidance while Honeywell slightly raised it. In tech, the message has been mixed. IBM fell 8 percent Friday after its weak earnings report, but shares of Google and Microsoft both gained even though revenues missed slightly.

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Asad Rasheed
Direct:04-3841906
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Email:info@cfb.ae

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news source: www.bbc.com