The first full trading week of the year came to an end with equity markets, aside from Japan, holding steady after the slightly nervy start to the year. Equity markets were helped as the central banks of the US and Europe made it clear that they are not planning any interest rate hikes in the near future, despite the improving economic outlook. The Federal Reserve, in the minutes released of the December meeting, were at pains to stress that they are in no hurry to exit completely QE. Mario Draghi on Thursday felt the need to emphasise "strongly" that he would keep rates low" for as long as necessary". In the UK speculation amongst the financial press is growing that the Bank of England is prepared to adjust its forward guidance on the unemployment rate from 7% to 6.5%, before considering a move to raise rates. US treasuries rallied after Friday's US payroll data came in below expectations, as the smallest number of Jobs was created since January 2011.
The other event, that occurred at the end of the week, which I usually draw attention to, was Alcoa's results. As a producer of aluminum, Alcoa is considered a bell weather of the upcoming earnings season, as it serves a broad range of industries. The earnings missed analyst's expectations and the stock fell 5% on the announcement. The miss was partly due to an impairment charge taken from acquisitions made over a decade ago. On the outlook Alcoa expects to see aluminum demand growth at 7% for 2014, in line with 2013. They see demand continuing to come from construction, auto and airlines. Alcoa's share price had seen some recovery in the past few months; part of the fall may have been attributed to some profit taking after the recent rise. Alcoa continues to suffer as the Aluminum price remains close to the lows it reached in 2007, despite some increase in demand and an improving economic outlook.
Companies, ahead of the Q4 earnings reports, have generally dampened analyst expectations down. This should make it easier for companies to make these earnings estimates. One would hope that with the improving economic outlook, Chief Executives, in their accompanying forward looking statements for the first quarter of 2014 will sound a more upbeat tone. This week we get several of the major US banks reporting as well as the US conglomerate General Electric.
One other thing to look out for, one may see a few headlines this week from the US as congressional appropriators negotiate the spending details to pass the agreement before the January 15th government shutdown deadline. Commentary coming out seems to suggest an agreement of some kind will be reached.