Investors to Focus on U.S. Budget, Trade Gap
U.S. trade data and the White House budget will take the spotlight this week as markets digest comments from a weekend Group of 7 meeting and upbeat remarks on the U.S. deficit from Federal Reserve Chairman Alan Greenspan.
The dollar surged to a three-month high against the euro Friday after Greenspan said market forces and greater federal budget discipline should help reduce the U.S.' record current account gap.
The U.S. budget and current account deficits have been a key factor behind the dollar's three-year decline. And the G-7 rich nations repeated calls for action to address the U.S. deficit Saturday.
"This is exactly what the market was expecting," said Ian Stannard, currency strategist at BNP Paribas.
President Bush will propose his fiscal 2006 budget today (see story on page A1). Despite skyrocketing Iraq war costs and proposed Social Security spending, White House officials say the administration is still on track to halve the federal budget deficit by 2009.
Last week stocks enjoyed their second straight week of gains, as buyers reentered the market after successful elections in Iraq and a reassuring statement from the Fed on interest rates. For the week, the Dow Jones industrial average rose 2.77%, the Standard & Poor's 500 climbed 2.7% and the Nasdaq composite index gained 2.5%.
This week potentially market-moving economic reports will be in short supply. And earnings season is winding down, with about 70% of the S&P 500 having already reported. Overall, the season has been fairly positive, helping to fuel buying over the last few weeks.
Two technology bellwethers will report this week. Cisco Systems Inc.'s share price has suffered as technology spending has fallen, and the stock closed Friday at $17.90, 33% off its 52-week high of $26.70 on Feb. 2, 2004. Cisco is expected to earn 22 cents a share, up from 18 cents in the same quarter a year earlier.
Dell Inc. has fared much better, closing Friday at $41.51, just 2.5% off of its 52-week high of $42.57, reached Dec. 9. The computer manufacturer is expected to earn 36 cents a share, up from 29 cents a year earlier.
The Week Ahead
* Federal Reserve reports on consumer credit for December.
* Quarterly earnings due from Electronic Data Systems Corp., Hasbro Inc. and WellPoint Inc.
* Quarterly earnings to be released by Alcan Inc., Aon Corp., Cisco Systems Inc., Marriott International Inc., Prudential Financial Inc. and VF Corp.
* Quarterly earnings due from Adolph Coors Co., American International Group Inc., Cigna Corp. and MetLife Inc.
* Commerce Department reports on international trade for December.
* Labor Department reports on weekly jobless claims.
* Treasury reports on federal budget for January.
* Freddie Mac reports on mortgage rates.
* Quarterly earnings released by Aetna Inc., Caesars Entertainment Inc., Dell Inc., International Steel Group Inc., May Department Stores Co., Waste Management Inc. and Winn-Dixie Stores Inc.