Five consecutive days of rises for the S&P 500, which saw indexes hit new record highs in America. The US dollar hit its highest level in three months against the yen. These moves were partly driven by renewed optimism that the much-vaunted tax reforms are becoming closer to reality. This optimism was derived from the news that the Senate had adopted a fiscal 2018 budget resolution. What is worth noting is the Vix index rose, if only modestly on the week, however, the index does remain close to record lows. Yields on US Treasuries rose over the week at both the longer and shorter end, leading to the shape of the curve steepening very modestly. The FTSE 100 and the Eurofirst 300 marked time over the week. Equities saw almost 9bn dollars of inflows in the past week, making it 17 out of 19 weeks for inflows into equities.
Earnings will continue to dominate headlines as Factset report that 17% of the S&P 500 have announced third-quarter earnings. So far 76% have reported positive earnings surprise and 72% announced positive sales surprise. Global technology company IBM, often in the past a serial disappointer, as the company has failed to keep pace with the changes in development provided a positive earnings surprise and the shares climbed 10pct on the news. The coming week is a massive one for company earnings as approximately one-third of the S&P will report in the coming five days. Companies announcing earnings include Microsoft, Amazon and Intel as well as Boing, Lockheed Martin, Ford and MacDonald’s to mention but a few.
The week ahead has plenty else to offer investors from a macro point of view. Maybe the most newsworthy will be the ECB rate-setting meeting. The ECB is not expected to change interest rates but what there is some expectation that Mario Draghi might announce their future intentions on the bond purchase program.
The other piece of macro news that is more than likely to make headlines will be the first estimate for US economic growth in the third quarter. Year on year economic growth reached 3% in the second quarter, economists forecast a pullback to 2.6% in the third. Assuming the number is not too far from forecasts there will be expectations for it to be revised in the following weeks.
The US is not the only region to announce preliminary estimates for economic growth in the third quarter as the first estimate for UK GDP is released on Wednesday. Estimates are for the economy to grow at 0.3% quarter on quarter. Early on Monday, we get the latest reading for the CBI’s Business Optimism index.