Market Perspective for December 5, 2016

Markets are poised to rebound after last week’s essentially flat finish. As we enter the first full week of December trading, investors anticipate building on November gains that topped 4 percent. Italy’s referendum will dominate much of this week’s global economic news. Prime Minister Matteo Renzi’s proposed changes to improve the Italian economy were soundly defeated. Investors will now look to the European Central Bank’s (ECB) response and the significant impact on the euro and other major currencies. A significant strengthening in the U.S. dollar may affect the price of Treasuries, oil, gold, and other commodities.

The Royal Bank of Australia (RBA) is scheduled to meet on Tuesday and the ECB’s policy meeting will be held on Thursday. While the RBA is forecast to hold rates at 1.5 percent, the ECB is expected to keep benchmark interest rates at zero percent. During prepared remarks Monday, ECB President Mario Draghi indicated the possibility of tighter monetary policies. Next week’s Federal Reserve meeting and expected interest rate hike is likely to impact markets this week, although most sectors have likely priced in the increase. President-elect Donald Trump’s cabinet picks and fiscal policy statements being made by his transition team may also shape market trends over the next few weeks and lead to increased volatility.

Several countries’ Purchasing Managers’ Index (PMI) reports will be available this week. While the Chinese Services PMI is forecast to drop slightly, U.S. and U.K. PMI reports are expected to show a modest increase. Wednesday’s weekly oil inventories are expected to increase marginally. Economists are calling for a decline in mortgage applications due to higher rates. The Job Openings and Labor Turnover Survey (JOLTS) report is also expected to reflect a slight decline in the number of job openings, though Thursday’s unemployment claims are expected to remain at multi-decade lows. Chinese trade balance figures will be released on Thursday and China’s Consumer Price Index reading will be issued Friday.

This week’s earnings reports will include H&R Block, Costco and lululemon athletica. Consensus estimates for H&R Block (HRB) anticipate a net loss of $0.68 per share on revenues of $126.9 billion when it reports on Wednesday. President-elect Trump’s campaign promise to simplify the U.S. tax code could hurt the company’s future earnings. An underperformer this year, Costco (COST) is forecast to show earnings per share (EPS) of $1.20 on revenues of $28.3 billion. lululemon athletica (LULU) is also scheduled to report on Wednesday. Analysts expect EPS of $0.43 and revenues of $540.7 million.

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