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Dozens report earnings this week, but central banks could bring pain
Dozens report earnings this week, but central banks could bring pain · CNBC
Patti Domm
Updated

Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB), ExxonMobil (NYSE: XOM) and dozens of other major companies report earnings in the week ahead, but central banks could bring on the volatility.

There is also a heavy schedule of economic reports in the coming week, including first quarter GDP on Thursday. Economists expect a barely positive number, and most forecasts are looking at growth under 1 percent. There are also durable goods Tuesday, international trade Wednesday and personal income and spending for March on Friday.

Oil inventory data from American Petroleum Institute on Tuesday afternoon and the Energy Department Wednesday morning will also be watched, as all markets are keeping an eye on oil prices. Brent (Intercontinental Exchange Europe: @LCO.1) was up almost 5 percent for the week to just above $45 a barrel, and the S&P energy sector was the best performer for the week — up 5 percent. The jump in oil prices surprised traders who were looking for a sell-off after producing nations failed to reach a deal to freeze production last weekend.

Stocks were higher in the past week, with the S&P 500 at 2,091.58, up 0.52 percent. The Dow was up 1.4. Stock strategists are looking for a breakout to the upside, even as yields look set to move higher.

In the coming week, the Fed meets Tuesday and Wednesday, and it is widely expected to take no action on rates, while sticking to its message that a rate hike isn't imminent.

"I think they will try their darndest to avoid any kind of policy change in their language," said Jeff Rosenberg, BlackRock's chief investment strategist for fixed income.

But then there's the Bank of Japan, which meets Thursday. "There's greater uncertainty with regard to what Japan is going to do," said Rosenberg. "I think the bigger question is whether it will have any impact." The last time the bank took action, it announced negative yields. As if in defiance, the yen ripped higher, and the negative yields ignited market fears that the program would be negative for banks.

There's speculation the BOJ could announce more asset purchases and take steps to apply negative rates to bank loans. "That is the potential risk. That would be viewed as them trying to fine tune the negative rate story so it actually helps the banking system," said George Goncalves, head of rate strategy at Nomura. He said the purchases most likely will be of more Japanese equity ETFs.

"I think it's all about what they're trying to achieve and can they do it. Even if it doesn't work long term, will it cause a market reaction? We have to be prepared for it. I think the Bank of Japan will give it a go next week, and it will be more important than the Fed," said Goncalves. "If the Fed can give a lukewarm hawkish message, and they get it right, that will keep the dollar from rallying and push long-term rates higher while pushing back hiking expectations a little more." He explained in a "lukewarm hawkish" message the Fed would appear to be intentionally holding off on rate hikes even though conditions have improved since its last meeting.

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