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Financial Markets Preview – Week of May 25, 2014

Week in Review

US Commerce DeptThe global markets strengthened for the third consecutive day last Friday inspired by the USA publishing a key economic indicator disclosing an impressive improvement in its vitally important housing sector. However, investors still adopted an increasingly cautious stance as the day progressed amid concerns over national elections to be held in the Ukraine and Greece over the coming weekend. Nonetheless, the primary US indices succeeded in rallying last Friday epitomized by the Dow Jones Industrial Average surging by just over 65 points; the S&P500 climbing by 8 points and the NASDAQ rising by almost 35 points.

The US Commerce Department posted a report last Friday revealing that the sales of new homes had surged during April by not only beating analysts’ expectations but also recording levels not witnessed for almost 3.5 years. Economists summarized this impressive result by advising that it provided additional evidence that the US housing sector was finally emerging out of the doldrums.

In direct response to this promising release, the S&P500 registered a new closing record high although it failed to surpass its historic intra-day peak. This is because equities pared a sizable portion of their earlier gains towards market close as investors adopted a profit-taking attitude to safe-guard their portfolios ahead of a sequence of volatile elections to be conducted over the approaching weekend.

Experts advised that strong housing data issued last Friday undoubtedly provided the bullish catalyst to drive stocks higher but that the upper side was definitely capped later during the session as major geopolitical tensions began dominating proceedings. They added that traders started to seek the sanctuary of safe-haven assets amid fears that the Ukrainian and Greek elections could produce unexpected and worrisome results.

For example, the prospect undoubtedly now exists that the Greek election could invoke panic if results threaten an exit of this nation from the Eurozone and the euro. For example, if the national left-hand Syriza performs well, then the present Greek relationships with the rest of Europe could come under intense pressure. In addition, the ongoing Ukrainian conflict with Russia is currently in such a precarious status that tensions could erupt even further if its election generates any surprising outcomes. Such circumstances could arise if pro-Moscow separatist opt to reject and ignore this important event.

What to Expect This Week

A number of high-rated economic indicators will be published around the globe over the coming days.

Traders are expecting little market volatility on Monday as the US stock exchanges will be shut in honor of the Memorial Day national holiday. On Tuesday, the USA will release its Durable Goods Orders and investors will be hoping for a good result in order to confirm that the US economic recovery is indeed on the right track. As such, look for an improvement over the previous monthly figure of 2.6%.

The Eurozone will present an important sentiment index on Wednesday which will disclose an overall assessment of consumer and business sentiment into the region. Analysts are hoping that a boost above last month’s figure of 103.0 will be generated vindicating that Europe’s fragile economy is definitely on the mend.

The USA will post two important indicators on Thursday. An important labor statistic will reveal just how many Americans filed first-time claims for unemployment benefits during the previous week. Any decline below the previous reading of 326K should spark a bullish reaction otherwise expect equities to slide. The vitally important Gross Domestic Product number will then be issued and economists will be seeking any improvement over the prior anemic 0.1%.

Later on Thursday, Japan is scheduled to publish a number of key economic results. First, the PMI manufacturing index will be announced. A value over 49.6 is needed to support progressive growth. Important inflation data will subsequently be released which should vindicate the Bank of Japan’s present stance of not instigating any new stimulus measures in order to bolster the national economy. Finally, the Industrial Production figure will be declared which must exceeded last month’s result of 0.3% in order to inspire ongoing investor confidence.

Friday will witness the USA presenting its Personnel Income and Outlays numbers. This major parameter provides economists with valuable insights into the true health of American consumers and their ability to help sustain current and future growth rates. A value greater than 0.5% is required to provide any possible bullish surge in the financial markets. Finally, Canada will complete the week by issuing its Gross Domestic Product numbers. The monthly GDP must exceed 0.2% while the quarter one needs be greater than 0.7% in order to vindicate that the Canadian economy is definitely acquiring sustained traction.

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