Major Events of Last Week
The US Labor Department advised late last week that its Consumer Price Index (CPI) grew by 0.3% during January to post its largest monthly increase since the middle of 2011. The primary catalysts for this welcoming performance were escalating medical and renting expenditures. Prominent economists summarized the significance of this development by stating that the Fed badly needed a surge in inflation which they got last Friday.
Specifically, core CPI recorded growth of 2.2% on an annualized basis compared to the ten-year average of 1.9%. This outcome is important since it could now convince the Fed to adhere to its new monetary tightening program by instigating further interest rate hikes during 2016. The prospects for such actions had seriously been diminished recently amid significant global economic woes and persistently declining commodity prices.
Nevertheless, the world’s stock markets still finished the week under stress as the recent rally in oil prices began to falter and previous concerns about a global economic slowdown resurfaced. Crude was pressurized by a substantial increase in US stockpiles which countered the efforts of a group of major oil producers, such as Russia and Saudi Arabia, to restrict their national outputs. As such, analysts now advise that any future equity rallies may just be fragile events as they may not be underpinned by solid fundamentals.
During the earlier part of last week, oil prices rallied by almost 15% from lows of about $27 per barrel. This recovery was achieved by a number of key exporters striving to sanction a plan capable of freezing global output at last month’s levels. If such an agreement can be attained then it will be the first one achieved by the Organization of Petroleum Countries (OPEC) in over 15 years.
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What to Expect This Week
The Eurozone will set the ball rolling on Monday by presenting the first sighting of its PMI (Manufacturing and Services). This indicator is expected to extend a steady sequence of low 50s readings.
On Tuesday, Germany will disclose an important Business Sentiment Index which is predicted to rebound from its prior disappointing result of 107.3. However, further weakness could strengthen the case for more monetary easing by the ECB and send the euro tumbling. Later, the USA will reveal a primary Consumer Confidence Survey. Expert consensus is presently favoring another print within the 90-100 range.
Australia is scheduled to release its Private Capital Expenditures (PCE) on Wednesday which should register its fifth consequent quarterly decline. Although a negative number is the preferred forecast, a smaller-than-expected retraction could bolster the Australian dollar.
Great Britain will launch Thursday by publishing the second estimate of its Gross Domestic Product (GDP) for the fourth quarter of 2015. The growing current pessimistic outlook, surrounding the British economy, could result in the first reading being revised slightly lower. The USA will then issue its Durable Goods Orders for last month which should rebound sharply this time around from the previous disappointing -5.1%.
The USA will complete the week by declaring the second estimate of its GDP for the last quarter of 2015. This revision is expected to beat the original figure of 0.7% growth on an annualized basis.
