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Financial Markets Preview – Week of January 25, 2015

Week in Review

ECBEuropean equities soared higher last Friday to record levels last seen over seven years ago. Investor sentiment received a substantial boost after the European Central Bank launched a massive asset purchasing plan the day before. In contrast, a spate of disappointing US corporate earnings reports dragged Wall Street lower. The USA did publish an encouraging economic indicator disclosing that Home Resales had rallied strongly during December. The euro remained under intense pressure exemplified by the EUR/USD registering an eleven year towards market close.  The major US indices produced a mixed reaction last Friday epitomized by the Dow Jones Industrial Average tumbling by just over 140 points; the S&P500 drifting lower by nearly 12 points while the NASDAQ rose by 8 points.

A pivotal event occurred last Thursday when the European Central Bank announced the start of a $1 trillion bond purchasing plan in March. Intense speculation has now been rife for many months that the ECB needed to implement aggressive action in order to counter the persistent threat of European deflation and to bolster the region’s stagnating economy. Global stocks surged higher after details of the new ECB stimulus package revealed that it was significantly larger in magnitude and scope than analysts had predicted.

Despite the general bullish atmosphere generated by the ECB, US stocks did not fare so well last Friday. This was because a number of US corporate earnings figures were issued for the last quarter of 2014 which failed to meet their targets. For example, the United Parcel Service witnessed its shares plunge by 10% after it posted worse-than-expected earnings results. Subsequently, anxious investors proceeded to adopt a risk aversive stance dragging share prices downwards amid fears that a strengthening US Dollar will now start stifling the future profits of leading US companies.

The US National Association of Realtors posted an important report last Friday revealing that Home Resales had increased during December. However, deeper statistics disclosed that a full recovery could still be some time away because the number of first time buyers remains subdued. Specifically, used home sales expanded by 2.4% on an annual basis during December surpassing analysts’ expectations.

The plight of the euro remained very evident late last week as it crashed dramatically to register its largest daily decline against the US Dollar in over three years. The single currency has now plunged in value against the greenback by over 7% since the start of 2015 and is presently on course to post its largest monthly drop since the onset of the 2007/08 financial crisis.

What to Expect This Week

A number of potentially market moving economic indicators will be released globally this week, as follows.

Germany will commence proceedings by presenting a key business climate parameter on Monday. The recent launch of new quantitative easing policies by the European Central Bank could provide this indicator with a late boost.

China will disclose a major economic index for December on Tuesday, which is expected to extend its bullish trend by posting an increase in the region of 0.9%. The United Kingdom will then reveal the first sight of its Gross Domestic Product for the last quarter of 2014. The recent release of a bout of weak economic indicators and mounting concerns about European monetary easing policies could weigh on the indicator. Later, the USA will declare its Durable Goods Orders for last month. This volatile release is presently favored to print an increase of 0.5% by bouncing back from a prior 0.9% decline.

Australian will kick-off Wednesday by proclaiming its Consumer Price Index for the last quarter of 2014. The Australian dollar could come under fresh pressure if this data fails to meet its mark, as widely expected. A pivotal event of the week could then occur when the Federal Open Market Committee (FOMC) announces its Interest Rate Decision and Future Guidance Policy. However, the declaration of these market moving items could be quite dull this time around as no major changes are currently on the cards. The Reserve Bank of New Zealand will close the session by posting its own Interest Rate verdict. This Central Bank may be tempted to instigate a surprise cut in order to protect its national economy and currency from the grave impacts of recent major global developments.

Japan is scheduled to issue its Housing Spending and Consumer Price Index (CPI) for December on Thursday. If these results do not meet economists’ expectations, then the Bank of Japan may need to contemplate the introduction of fresh stimulus policies in the imminent future.

On Friday, Great Britain will release its Net Leading to Individuals for December. Should the Gross Domestic Product, released on Tuesday, produce a strong result, then this parameter may well follow suite. The Eurozone will next issue its preliminary Consumer Price Index for this month which is forecasted to deliver another worrisome reading fuelled by rapidly declining oil prices. Canada will subsequently publish its Gross Domestic Product for November. The surprise interest rate cut by the Bank of Canada last week could be a precursor for a dismal outcome. Finally, the USA will unveil its Advance Gross Domestic Product for the fourth quarter of 2014. Another reading above 3.0% will bolster the US Dollar.