World Week Ahead: Yellen’s semi-annual testimony

US Federal Reserve chair Janet Yellen's semiannual monetary policy testimony to Congress will form a key focus in a week that will also offer reports on the consumer price index and retail sales.

Yellen will testify before the House Financial Services Committee on Wednesday and before the Senate Banking Committee on Thursday.

Last Friday, Wall Street closed higher as a Labour Department report showed the US economy added 222,000 jobs in June, more than economists had predicted, while the unemployment rate increased to 4.4 percent.

The Dow Jones Industrial Average climbed 0.4 percent, the Standard & Poor's 500 Index advanced 0.6 percent and the Nasdaq Composite Index rallied 1 percent.

"This doesn't change the big picture materially for the Fed," Michael Feroli, chief US economist at JPMorgan Chase in New York, told Bloomberg. "It's mixed. We had a little higher unemployment, little softer wages but then very strong payrolls."

The US central bank has signalled its intention to raise rates a third time later this year, while it also might start to unwind its balance sheet.

For the week, the Dow rose 0.3 percent, the S&P 500 added 0.1 percent, while the Nasdaq gained 0.2 percent.

US Treasuries, meanwhile, slid last week, pushing yields higher, while German bunds also declined.

Some investors say the outlook remains positive for Treasuries and that concerns about inflation gathering steam are excessive.

"Therefore the burden of proof really is on the people who look at the data 15 different ways and conclude that someday, somehow we will end up with inflation," Krishna Memani, chief investment officer and head of fixed income at OppenheimerFunds, told Bloomberg.

"What the world wants more than anything else is a good bond," Memani noted. "And I think that is the driver of yield more than anything else."

A host of other Fed policy makers are slated to speak this week including John Williams today, Lael Brainard and Neel Kashkari on Tuesday, Esther George on Wednesday, Charles Evans on Thursday, and Robert Kaplan on Friday.

A slew of US economic reports will also offer fresh clues. They include the labour market conditions index, and consumer credit, due today; NFIB small business optimism index, JOLTS, and wholesale trade, due Tuesday; Atlanta Fed business inflation expectations, due Wednesday; weekly jobless claims, and producer price index, due Thursday; as well as the consumer price index, retail sales, industrial production, business inventories, and consumer sentiment, due Friday.

Also, the Fed's Beige Book is scheduled for release on Wednesday.

Tech stocks, which have suffered in recent weeks, moved higher on Friday. The sector will come back in favour in the second half of the year, Bryant Evans, a portfolio manager at Cozad Asset Management in Champaign, Illinois, told Reuters.

John Praveen, managing director of Prudential International Investments Advisers in Newark, New Jersey, also remains optimistic on the industry.

"I think of [tech's recent swoon] as profit-taking rather than driven by change in the fundamental factors," Praveen told Reuters. "The fundamentals are still positive for the sector."

In Europe, the latest economic data this week will arrive in the form of Germany's trade balance, and eurozone Sentix investor confidence today, eurozone industrial production on Wednesday, Germany's consumer price index on Thursday, eurozone trade balance on Friday.

Meanwhile, investors will eye a meeting of Bank of Canada policy makers which might announce a decision to increase its key interest rate on Wednesday.

A Reuters poll showed that 14 of 31 economists, including all but three from the 11 banks that do business directly with the Bank of Canada, expect it to raise rates by a quarter percentage point to 0.75 percent on Wednesday.

(BusinessDesk)