Keen market watch on US results season indicators

JP Morgan financial results this week will be a focus for signs of a downturn. Photo by Reuters.
JP Morgan financial results this week will be a focus for signs of a downturn. Photo by Reuters.

The United States earning season ramped up this week with many of the big financial names reporting results, Craigs Investment Partners broker Chris Timms said yesterday.

But it was the US dollar which was expected to come in for more pressure this week as investors start looking for signs of a US interest rate increase.

The JP Morgan results would come after the market closed tomorrow, and others would follow, he said.

Bank of America and Wells Fargo would be on Thursday, followed by Goldman Sachs and Citigroup. Others set to report were General Electric, BlackRock, Intel and Netflix.

Focus would be on earnings as the market would get more information about how much the emerging market slowdown had damaged earnings and how much bad news had been priced in, Mr Timms said.

Also being watched for were any remarks coming from Federal Reserve officials as investors continued to seek guidance on when US rates would start to rise.

The Fed's apparent reluctance to lift rates was negative for the US dollar, which slid for the week, while commodity-linked currencies, including the New Zealand dollar, recouped some of their recent losses.

ASB chief economist Nick Tuffley said the kiwi had gained 7% against the US dollar in less than three weeks.

In New Zealand, four consecutive price rises at the GlobalDairyTrade auction supported the dollar.

Further, the dollar had been pushed even higher by market participants delaying their expectations of the first Fed rate hike.

The Fed did not raise rates in September and the US non-farm payrolls reading on October 2 came in well below expectations.

The Fed meeting minutes, released last week, were more dovish than market participants expected.

Combined, those events meant market pricing of a Fed rate hike moved well into 2016, suppressing the US dollar, he said.

''The key implication of a higher dollar is what it means for inflation and the OCR. Currently, the Reserve Bank is forecasting inflation will return to the mid-point of its inflation target [2%] by September 2016.''

However, the forecast was heavily reliant on a lower dollar on a trade-weighted index.

The Reserve Bank's latest forecasts for the TWI had already come unstuck with the increase in the dollar.

The TWI was sitting at 71.6 whereas the Reserve Bank's forecast for the December quarter was an average of 68, Mr Tuffley said.

Westpac New York currency strategist Richard Franulovich said the near-term prognosis for the US dollar was challenging.

The latest futures data showed bullish bets on the greenback had dropped.

US Fed officials said at the weekend the first interest rate increase since 2006 might still not happen this calendar year.

Add a Comment