BUSINESS

Traders look to data expected to show stronger U.S. growth in fourth quarter

01/22/2012 06:00 EST | Updated 03/23/2012 05:12 EDT
TORONTO - Investors will turn their attention to the U.S. this week for data that is expected to bolster expectations that the U.S. continues to crawl out from the worst economic downturn since the 1930s.

The U.S. Federal Reserve makes its next interest rate announcement Wednesday afternoon. And while no one expects the Fed to move rates away from near zero, traders will look forward to the Fed's latest take on economic conditions.

And on Friday, the U.S. government releases its first assessment on gross domestic product growth for the fourth quarter of 2011.

Optimism is high ahead of both events since a recent run of economic data and corporate earnings have shown that the American economy is gaining momentum, albeit slowly.

"All the indicators for the fourth quarter suggested that we’re going to get decent data," said Andrew Pyle, investment adviser with ScotiaMcLeod in Peterborough, Ont.

"I think that it should be a decent number (and) it will reinforce the positive mood that is in the markets with respect to the data."

Certainly the initial data for the beginning of 2012 seems hopeful.

Reports out last week showed that claims for unemployment insurance were lower than at any time in nearly four years while other reports showed manufacturing expanded in the Northeast in January. And the Fed said that factory output across the U.S. surged in December by the most in a year.

And the December non-farm payrolls report released earlier this month showed job growth of 200,000, short of what the U.S. needs to recover the 8.7 million jobs wiped out during the recession but still showing that job creation is showing momentum.

A positive fourth quarter earnings season has also led economists to expect that the U.S. economy grew at an annualized rate of three per cent during the fourth quarter, up from 1.8 per cent in the third quarter.

Pyle said expectations from the Fed announcement are low as the central bank has no reason to trot out any expectations of further easing measures to stimulate the economy.

"They have to be careful," said Pyle.

"Let’s assume that they actually do hint towards further easing. That would be interpreted as a sign to the market that they’re trying to bolster the market. Stocks have been rising now for weeks and if they were to start talking about further easing, that would almost be an overt attempt to fuel or extend this rally which they have to be very careful to be seen doing that."

Traders also face another heavy week of earnings in the U.S. while the fourth quarter earnings season starts to gain momentum in Canada with reports from Canadian National Railways (TSX:CNR) and Canadian Pacific Railway (TSX:CP).

U.S. earnings will span a variety of industries, including oil services firm Halliburton, railroad CSX, McDonalds, Advanced Micro Devices, DuPont, Boeing and Procter and Gamble.

So far, the earnings have been largely positive.

"The fourth quarter was kind of a relief," said Pyle.

"Choppy but definitely in the right direction and the markets now are going to be looking at — can we extend that in the first quarter?"

Meanwhile, the economic calendar for Canada is light for this week.

Traders will look to see a slowdown in retail sales for November with economists expecting sales rose 0.2 per cent following one per cent advances in each of the two prior months.

"Auto sales slipped by one per cent, gasoline prices retreated more than two per cent and consumer confidence and employment were weak in the month," observed a commentary from BMO Capital Markets.