Markets are looking to advance for a fourth consecutive week as oil and financial sector stocks start the week strong. U.S. employment data has increased the odds of a Fed rate hike later this year, fueling a rally that has boosted financials. In addition to growing optimism at home, falling confidence in Europe, Japan and China is supporting domestic growth as investors expect more easing and stimulus overseas.
While a strong economy and rising inflation have lifted the odds of September Federal Reserve rate hike above 60 percent, other central banks continue to ease. Last week, Chinese officials cut their reserve requirements for banks, potentially unleashing as much as $100 billion in new lending. This week, attention turns to Europe, where investors expect the European Central Bank will lower already negative interest rates; a 0.1 percent reduction is anticipated and priced into the euro. Meeting or exceeding expectations will be bullish for financial markets, but the bank will have to surprise if it wants to change the market’s outlook on inflation and/or weaken the euro.
This week will be very light on economic data. On Monday afternoon, consumer credit for January was released, coming in at $10.54 billion. Wholesale inventories for January, a key number for GDP forecasts, reports on Wednesday and has the potential to move the Atlanta Fed’s GDP Now model, which currently forecasts 2.2 percent growth in the first quarter. Weekly unemployment claims, the quarterly survey of services and President Obama’s latest budget proposal, will be available on Thursday. Import price data will be released Friday.
The European Central Bank rate announcement on Thursday will dominate economic news in Europe. Chinese foreign reserves were released Monday, showing a marginally smaller decline in February than expected. Economists anticipated slower outflows during the Chinese New Year holiday. On Tuesday, China will release February trade data and analysts expect a decline in both exports and imports. Chinese inflation data for February will be out on Friday; analysts project higher Consumer Price Index inflation and slower deflation in the Producer Price Index.
Earnings season is largely over for the S&P 500 Index companies, but the retail sector isn’t finished. This week Dollar General (DG) is expected to confirm a slight dip in sales from the previous quarter, with analysts estimating earnings per share (EPS) of $1.26 with revenues of $5.29 billion. Rival retailers Wal-Mart (WMT) and Dollar Tree (DLTR) also reported weak sales, but their stock prices advanced amid the rally in retail shares. Clothier Urban Outfitters (URBN) will also report this week and is expected to beat estimates for EPS of $0.56 on $1.02 in revenues. Square (SQ) will report its first quarterly earnings since going public last fall. The mobile payment service’s revenues are expected to fall short of estimates due to the strong competition in the mobile payments sector, but investors will focus on revenues for a sign of long-term growth. Consensus estimates are for net loss of $0.13 per share and $343.22 million in revenues. Shake Shack (SHAK) is expected to report adjusted earnings of 7 cents per share compared to a penny loss for the same period last year. Revenue is expected to rise 45 percent to $50.3 million. Investors will focus on the company’s operating margins and growth.