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Financial Markets Preview – Week of October 19, 2014

Week in Review

gelogo After a week during which blind panic dominated directional movements driving global equities constantly lower, the stock markets staged a late rally last Friday. Investor confidence was bolstered by the posting of a spate of robust corporate earnings reports and the publication of encouraging economic data by the USA. Nevertheless, these promising signs were still insufficient to the quell the substantial fears about a serious slowdown in the global economic recovery; Ebola health concerns and the growing prospects of recessions in key trading regions such as Europe and Japan.  Still, the foremost US indices succeeded in surging higher last Friday epitomized by the Dow soaring by slightly over 270 points; the S&P500 rising by almost 25 points and the NASDAQ climbing by nearly 47 points.

The USA published a bout of major indicators last Friday revealing better-than-expected results for both its housing sector and consumer sentiment. Housing permits and new starts climbed during September adding further credence to the viewpoint that this key economic component is beginning to unpin national growth. In addition, Thomson Reuters/University of Michigan released a preliminary reading for their renowned consumer sentiment index disclosing that it had successfully hit record highs during October. These encouraging figures certainly prompted investors to recapture some composure by bolstering their risk appetite towards the end of last week.

A batch of corporate earnings reports, which surpassed analysts’ expectations, also added to a more upbeat mood last Friday. For example, General Electric witnessed its shares climb by almost 3.5% after it reported quarterly earnings that exceeded market predictions. Similarly, Honeywell enjoyed a good day with its stocks soaring by over 4.0% after it issued impressive earnings figures for the third quarter of 2014.  However, despite the disclosure of these more positive signs, the major global indices still failed to make full recoveries exemplified by the S&P 500 registering its fourth consecutive week of losses.

Prominent market analysts summarized these recent developments by stating that they felt that the bearish mood and reactions experienced since the start of October were now probably spent forces. Consequently, they currently expect the underlying bullish trend to recommence in the near future since the supporting fundamental factors were still very much in place. They did caution about a key risk factor which was the on-going attitude of the European Central Bank. This is because many economists presently assess that the ECB is not capable any more of preventing another serious debt crisis in the Eurozone, which could totally destabilize the world’s financial markets.

What to Expect This Week

A number of major economic indicators will be posted globally next week, as follows:

Monday will be a quiet day with no major events scheduled. China will kick-off Tuesday by presenting its Gross Domestic Product (GDP) for the third quarter of 2014. Pundits are presently predicting a figure just over 7.0%, which would be the lowest growth rate since early 2009, if confirmed. Later, the USA will announce its Existing Home Sales for last month which should come in about 5.11M.

On Wednesday, Australia will declare its Consumer Price Index (CPI) for its third quarter. If a value of 2.3% is delivered as forecasted, this this posting will be just a non-event. The Bank of England will then provide the minutes from its latest policy meeting with vote counts. Considering the significant turmoil experienced by the markets last week, the information supplied may now be irrelevant. Later in the session, the USA will issue its Consumer Price Index for last month. A result below 1.7% could trigger an urgent Fed debate concerning further quantitative easing. Canada will release its Retail Sales number for August at the same time which should rebound from its prior dismal showing of -0.1% to a healthier 0.2%.

The Bank of Canada (BoC) will also proclaim its Interest Rate and monetary policy decisions on Wednesday accompanied by a press conference. The BoC is expected to keep rates steady but warn about the consequences of declining inflation. Glen Stevens, Governor of the Reserve Bank of Australia, will then deliver a speech during which he is expected to talk down his national currency amid economic slowdowns in Europe and China.  New Zealand will complete the day by disclosing its Consumer Price Index for its third quarter. A result under 1.5% could ignite a serious correction in the New Zealand dollar.

Japan will launch Thursday by revealing a flash Manufacturing PMI for this month. A number beneath 50 could spark new monetary easing discussions by the Bank of Japan. The Eurozone will then present a string of PMIs for Services, Manufacturing and Composites. The euro could come under fresh pressure if any of these parameters post readings under 50. Next, the United Kingdom will declare its Retail Sales for last month with expert consensus favoring a decline of -0.1%. New Zealand will terminate the session by announcing its Trade Balance for September which should extend its monthly losses by falling another -620M.

Germany will commence Friday by proclaiming a major consumer confidence survey, which is predicted to drop to 8.1%. Great Britain will then disclose a preliminary GDP reading for its third quarter which should record a rise of 3% annually. Finally, the USA will reveal its new Home Sales for last month with a plunge to 473K the predicted outcome.