Markets will try to bounce back from last week’s selling following a slide in retail and technology shares. Investors should also stay attuned to potential political and economic impact in the wake of terror attacks in Paris, though there was little discernable impact on the market in early Monday trading. The euro fell in proportion to last week’s declining trend. Oil prices rebounded on Monday after eight consecutive days of losses. Heightened security efforts and border restrictions in Europe may temporarily slow the economy. Any damage to the economy is likely to reinforce the European Central Bank’s resolve to step in with additional monetary easing, if required, and the ECB was considering easing in December prior to the attacks.
Japan’s economy dipped into recession in the third quarter. It is the second consecutive quarterly contraction for the nation. The shrinking economy is reflective of Japan’s falling population, which has been in decline since it peaked a decade ago. The more important number for Japan is nominal GDP, which increased 0.1 percent, but that growth isn’t nearly fast enough. With government debt rising more rapidly than GDP, the country’s fiscal position continues to weaken. A weaker currency may be the only way to generate the inflation and nominal growth needed to improve the country’s fiscal position.
The Consumer Price Index (CPI) report on Tuesday is expected to show a 0.2 percent increase. Inflation is a key gauge used by the Fed and one of the last remaining major data points for deciding its next move. Investors will gain more insight when the Fed releases the minutes of its October meeting on Wednesday. Odds of a December rate hike came into the week at 70 percent. If data is positive and Fed minutes show officials leaning towards raising rates, this week could end with the odds of a rate hike approaching certainty.
Wednesday’s housing starts for October will provide data on the health of the housing industry. A small decline is expected from the previous month. In addition to weekly unemployment claims report on Thursday, Empire State, Philly Fed and Kansas City Fed manufacturing surveys reports this week will provide a snapshot of the economy’s strength.
With earnings season about 90 percent over, only the retail sector remains as a major reporting sector. Potential market movers announcing earnings this week include Wal-Mart (WMT), Target (TGT) and Best Buy (BBY). Down 33.7 percent year-to-date, Wal-Mart started the retail slide when it warned on earnings last month. The retail behemoth is expected to report earnings of $0.98 a share. Bucking the trend, Target is trading near its 52-week high; it’s expected to report earnings of $0.86 per share. Best Buy’s earnings should also provide additional information on the health of the consumer and the outlook for holiday sales. Other big names reporting this week include Salesforce.com (CRM) and Staples (SPLS) as well as home improvement giants Home Depot (HD) and Lowe’s (LOW). The latter two are top holdings in most housing and home construction funds.