Central bank reassurances bolster Wall St highs

Fresh reassurances from central banks in the US and Europe that their policies will remain accommodative as long as needed to help revive economic growth continues to bolster Wall Street to record highs and that optimism seems here to stay.

Sentiment is such that even mixed news is good news. Non-farm payrolls climbed a lower-than-expected 162,000 in July, though the unemployment rate fell to 7.4 per cent, from 7.6 per cent, its lowest since December 2008.

The numbers showed that the recovery in the American labour market remains tepid. However, investors bet that might deter, at least for a few more months, the Federal Reserve's plans to begin easing its US$85 billion-a-month bond-buying program.

"The payroll report wasn't weak enough to significantly undermine the US economic outperformance story," Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas in New York, told Bloomberg News. "This would be consistent for our expectation for December tapering instead of September."

Indeed, fewer US primary dealers now expect the Fed to start scaling back purchases in September than they did a month ago, according to a Reuters poll done after the payrolls figures were released on Friday.

Nine of 18 primary dealers expect a decision to lower the pace of buying bonds in September, while two predict a cut in October, five said December, one said the fourth quarter of 2013, and one said the first quarter of 2014. In a similar poll conducted July 5, 11 of 17 dealers expected purchases to slow in September, three said October, only two said December, and one said the first quarter of 2014.

On Friday, the Dow Jones Industrial Average advanced 0.19 per cent to close at a record high 15,658.36, while the Standard & Poor's 500 Index rose 0.16 per cent to end at a record 1,709.67 and the Nasdaq Composite Index increased 0.38 per cent.

For the week, the S&P 500 gained 1.1 per cent, while the Dow rose 0.6 per cent and the Nasdaq increased 2.1 per cent.

Investors keen for more insight on the Fed's mindset have several options this week: Dallas Fed President Richard Fisher speaks on the economy in Portland, Oregon, on Monday; Chicago Fed President Charles Evans will host a press breakfast on Tuesday; and Cleveland Fed President Sandra Pianalto speaks in Cleveland on Wednesday.

Among the American companies releasing earnings in the coming days are Walt Disney, Time Warner, CVS Caremark, Tyson Foods, Dean Foods and Groupon.

While most companies have been able to beat quarterly expectations, guidance for the next quarter has been a different story. Negative outlooks for the third quarter from S&P companies have outpaced positive ones by 3.7 to 1, according to Thomson Reuters data. Last quarter, the ratio was 6.3 to 1, but on average since 1996, the ratio stands at 2.1 to 1.

The latest US economic data will come in the form of the ISM non-manufacturing index, due Monday, international trade, due Tuesday, consumer credit, due Wednesday, weekly jobless claims, due Thursday, and wholesale trade, due Friday.

The US Treasury will auction three-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday. Demand for US government debt sales has been lacklustre at best this year.

Investors bid US$2.91 for each US$1 of the US$1.257 billion of notes and bonds sold by the Treasury this year, compared with a record high US$3.15 of bids last year, according to Bloomberg News. It's the first decline in demand at the auctions since 2008.

In Europe, the Stoxx 600 Index climbed 1.8 per cent last week amid better-than-expected corporate earnings in the euro zone.

Also bolstering sentiment was a fresh promise by European Central Bank President Mario Draghi that policy makers will keep borrowing costs low.

Here, the latest data scheduled for release includes reports on euro zone PMI services and retail sales, due Monday, Italy's second-quarter GDP and Germany's factory orders, due Tuesday, Germany's industrial production, due Wednesday, and Germany's trade balance, due Thursday.

The ECB publishes its monthly report on Thursday.

In other central bank news, policy makers of the Bank of Japan meet in the coming days.