It’s been a fairly uneventful start to trading on Thursday but that should all change as we approach the US open as we get a slew of earnings reports, economic data and hear from Fed policy makers.
There’s been a lot of attention on the current earnings season and what impact the dollar, weather and oil prices had on profits. The biggest concern is the strength of the dollar and to what extent it has eroded away at overseas profits, especially as it is only likely to get stronger in the next 12 months as a result of the diverging policies of the Fed and other central banks.
As of yet, earnings haven’t been too bad although we are predominantly hearing from the financial sector which was always expected to outperform. With financials remaining the focus today, as Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) among others report on the first quarter, we may continue to see more of the same.
It’s been a tough winter for the housing market in the US, with the number of housing starts being hit by the poor weather conditions. Throughout this period though, building permits have been rising so I would imagine that in the coming months, housing starts should pick up dramatically both to account for those projects that were delayed and the new projects that have been approved. A rise to 1.05 million from 0.9 million is expected for March but I expect this to pick up even more over the next few months to make up for the lost time at the start of the year.
We’ve also seen a dramatic slowdown in the Philly Fed manufacturing index in the first quarter but with the weather now improving, we could see this start to bounce back. It will be interesting to see if there will be any long term consequence for manufacturing, particularly for exports, as a result of the stronger dollar. A stronger currency naturally makes exporters less competitive while at the same time boosting the purchasing power of local consumers as foreign products become cheaper. From a manufacturers standpoint it’s lose lose.
We’ll also hear from a number of Federal Reserve policy makers today, most notably Dennis Lockhart and Stanley Fisher, both of whom are voting members of the FOMC. The Fed is still widely expected to hike interest rates this year although there are many differing views on when this will come. The Fed’s insistence that the move will be data dependent while not explicitly stating what they want to achieve doesn’t help matters. Any clarity that Lockhart or Fisher could provide could get a strong reaction in the markets.
Key again today will also be moves in the oil prices. Yesterday’s gains were largely driven by movements in oil and with Brent and WTI now trading at the top end of their recent ranges, we could see some big moves again today. A break above $62.30 in Brent could open up a move towards $67.20 and $73 in the coming sessions, while $59 and $63.75 could be eyed in WTI.
The S&P is expected to open 6 points lower, the Dow 52 points lower and the NASDAQ 6 points lower.