Investors look to catch their breath

World week ahead

It has been a good start to the year for most equity investors and while correction chatter is on the rise, it appears investors are simply looking to catch their breath.

The global economic recovery has begun and as expected a few bumps have been hit. 

In the week ahead, investors will be focused on China’s moves to steady growth while checking inflation; on the outlook for the US healthcare sector and the latest reading on the housing industry; and, whether Greece knocks at the door of the International Monetary Fund.

The Dow Jones industrial average and the benchmark Standard & Poor's 500 Index are pushing against levels last seen in October 2009. The S&P 500 is up 71 per cent  from the March 2009 bottom. 

The Stoxx Europe 600 Index gained 0.7 per cent  to 260.20 last week - its third straight weekly advance. The index has rallied 65 per cent  in the last year.

Britain's top share index edged to its highest close in 21 months on Friday, spurred by strength in banking stocks after Lloyds Banking Group said it would return to profitability in 2010. 

“Just given the moves we've seen over the past month, a very rapid ascent, I think the market will probably welcome a period of time where we might be able to digest some of this data going forward,” Christian Hviid, chief market strategist at Genworth Financial Asset Management in Encino, California, told Reuters on Friday. “That probably argues for a more sideways move in the market.”

Technically speaking, US stocks appear set to move higher ahead of any correction. 

The S&P500 has entered an “air pocket” of little resistance as it pushed to a 17-month high, according to analysts at Instinet, who say the benchmark could extend its rally.

The area of little resistance extends to between 1180 and 1200, where prices may keep rising even with low volume, according to a Bloomberg News report on an analysis by Instinet’s New York-based chief market technician John Schlitz. The index closed at 1165.83 on Friday. 

While the US first-quarter earnings season is still several weeks away, some key US companies will be releasing results next week including Oracle Corp, Tiffany & Co, KB Home, Best Buy and Walgreen Co.

Not all investors are focused on stocks. 

The spread between 2- and 10-year US Treasury yields, charted on the yield curve, dropped yesterday to 2.70 percentage points, the lowest level on a closing basis since January 1. The yield on the 10-year note was little changed at 3.69 per cent  at the end of last week.

“With the Fed leaving the ‘extended period’ language in place and benign inflation, investors are understanding that to pick up yield you have to go out the curve,” Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co, a fixed-income broker and dealer for institutional investors, told Bloomberg.

The US government will offer US$44 billion of 2012 debt on Tuesday, US$42 billion in five-year notes the following day and US$32 billion of 2017 securities on Thursday.

As for the forex market, the greenback is favoured to extend its advance. 

For the week, the euro fell 1.9 per cent  against the US dollar, the worst weekly decline since January 31 at current prices. It last traded at US$1.3511.

The dollar fell 0.2 per cent  against the yen at current prices on the week, its first weekly decline since the week ended February 28. 

Gold shed almost 2 per cent  on Friday to near US$1100 an ounce. Gold for April delivery fell US$19.90 or 1.8 per cent  to US$1107.60.

- BusinessDesk