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Financial Markets Preview – Week of November 9, 2014

Week in Review

At the end of a nervous week plagued by uncertainty, US equities basically trended water last Friday after the USA issued its eagerly awaited labor report for October, which missed analysts’ expectations. However, two of the leading US indices, the S&P500 and Dow, still succeeded in edging upwards to register historic highs. Specifically, the S&P500 is now posting a total gain of 10% for 2014 after recording three consecutive days of gains. Although the Non-Farm Payroll result was slightly disappointing, it nevertheless confirmed that the US labor market was still making progress and gathering traction. The foremost US indices produced a mixed reaction last Friday to the release of an insipid US labor report exemplified by the Dow Jones Industrial Average slumping by just over 20 points; the S&P500 inching lower by nearly 2 points but the NASDAQ falling by 13 points.

The US Department of Labor posted its monthly report last Friday demonstrating that employers had created 214,000 new jobs during October, which missed market expectations of 231,000. On a more positive note, the US unemployment rate slipped lower from 5.9% to 5.8%. Prominent analysts summarized these results by advising that although the Non-Farm Payroll (NFP) was slightly weak, investors should still adopt a bullish stance until powerful new bearish catalysts appear or the Fed hikes its benchmark interest rates. They further added that essentially trader sentiment remains high and the current corporate earnings season continues to deliver impressive figures for the third quarter of 2014.

The weaker-than-expected jobs number prompted the US Dollar to retract lower against a basketful of other major currencies. Investors opted to adopt a profit-taking stance by selling the greenback following a month-old rally during which it has captured stellar gains. Basically, the US Dollar has acquired substantial support amid escalating conjecture that the US Federal Reserve will instigate its first interest rate hike during 2015. Consequently, the dip experienced last Friday was still assessed by many pundits to just be a temporary correction before the US Dollar recommences its upwards journey.

In contrast, the euro remains under significant and constant pressure epitomized by it plunging to new lows across the board late last week. The European Central Bank added to the plight of the single currency by advising last Thursday that it intended to instigate whatever steps were necessary, including unconventional measures, to bolster a seriously flagging European economic recovery.

What to Expect This Week

This week will witness the posting of a sequence of important global economic indicators.

China will commence proceedings by issuing its Consumer Price Index for October on Monday which is expected to remain steady at 1.6%.

Australia will launch Tuesday by disclosing a key Business Confidence survey for last month. Recent weaker-than-expected economic data implies that this parameter may not fare so well this time around by registering a sizeable drop. Japan will then reveal a primary Consumer Confidence Index which is predicted to post a fourth consecutive monthly loss. Next, the Reserve Bank of New Zealand will produce its Financial Stability report accompanied by a speech by Graeme Wheeler, the RBNZ Governor. If this document projects a more dovish tone then it could drive the New Zealand Dollar lower.

The President of the Federal Reserve Bank of Philadelphia, Charles Plosser, is scheduled to speak on Wednesday. He is expected to promote his hawkish stance by explaining why the US Federal Reserve should hike interest rates sooner than later despite the release of insipid labor figures last Friday. Later, Great Britain will declare its Unemployment Rate and Claimant Count Change for October. Investors will be keen to learn if the economic troubles across Europe have finally crossed the channel. The Eurozone will subsequently announce its Industrial Production figure. A good result is needed in order to boost the Euro and prevent it probing new lows. The Bank of England will complete the session by presenting its quarterly inflation report. Mark Carney, the BoE Governor, will support this event by delivering a speech. If he indicates that the BoE may not be the first Central Bank to hike its interest rates, then expect the British pound to suffer.

No major economic indicators will be published on Thursday.

The Eurozone will kick-off Friday by releasing its Preliminary Gross Domestic Product. Although analysts are currently forecasting an annual increase of 0.1%, do not be surprised if a weaker rate is printed. Canada will then deliver is Manufacturing Sales for September which is expected to rebound from its prior drop of 3.3% to record growth of 1.3%. The USA will next announce its Retails Sales for October. After many months of weak returns, this indicator is predicted to register strong growth for last month. Finally, the USA will reveal the first sighting of a key Consumer Sentiment Index for November which should extend its previous month’s growth.