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Financial Markets Preview – Week of April 27, 2014

Week in Review

amazonInvestor confidence took a severe hit last Friday following the release of a spate of disappointing corporate earnings reports by a number of prominent US major conglomerates which missed analysts’ expectations. The market mood was soured even further by increasing geopolitical tension mounting in the Ukrainian crisis ahead of what could be a very nervous weekend. Consequently, the foremost US indices took a nosedive last Friday epitomized by the Dow Jones Industrial Average crashing by slightly over 140 points; the S&P500 slumping by 15 points and the NASDAQ plunging by nearly 75 points.

Amazon surprised traders late last week by posting worse-than-expected financial performance figures for the first quarter of 2014. The shares of the giant on-line retailer subsequently plummeted by almost 10% during last Friday’s trading session after results disclosed serious spending increases despite registering a jump in revenue during the specified period. Ford Motor Co. augmented the gloom by revealing first quarter earnings that had missed to the downside. The second largest car manufacturer in the USA witnessed its stock plunge by over 3% after its management advised that performance had been significantly compromised by higher warranty charges.

On a more positive note, Microsoft did release its first quarter results which succeeded in surpassing analysts’ expectations. Investors were also impressed by the new policies instigated by the producer of the Windows Operating System which focus on the importance of cloud computing and mobile applications. As a direct result of these encouraging developments, the shares of Microsoft edged upwards by almost 0.1% towards the end of last week. The USA also issued a key consumer sentiment index last Friday which recorded its highest value in just over nine months.

However, these two outcomes failed to counter the negative impacts of Amazon and Ford Motors combined with a series of other worrisome events. For example, investors continued to dump riskier assets, such as those located within the Biotechnological sector. In addition, numerous social media firms crashed exemplified by Twitter dropping just over 7% last Friday.

Further despondence arose from the deteriorating situation between Ukraine and Russia after a number of pro-Moscow separatists were killed late last week. In addition, after ascertaining that Russia had not fully complied with the terms and conditions of a recent peace agreement, Barrack Obama, the US President, advised last Friday that the USA and four of its major allies were now poised to shortly implement stiff sanctions against Moscow.

What to Expect This Week

The following sequence of key economic indicators will be posted over the coming days.

After a quiet Monday, this busy week will commence in earnest on Tuesday with Great Britain disclosing its Gross Domestic Product figure. Analysts are predicting that the UK will return a strong result for the first quarter of 2014 by confirming the Bank of England’s own forecast of a 1% increase.

On Wednesday, the Bank of Japan (BoJ) will present its Interest Rate Decision followed by holding a press conference shortly afterwards. Conjecture has been growing recently about whether the BoJ will contemplate introducing new monetary easing policies before it has had enough time to fully assess the impacts of a substantial sales tax hike introduced recently . Later, the Eurozone will post a key Consumer Price Index which could prompt the European Central Bank to implement fresh stimulus measures in order to counter deflation should a disappointing result be produced.

The USA will then publish its Gross Domestic Product later on Wednesday for the first quarter of 2014. Investors will be keen to learn if a particularly harsh North American winter has seriously impacted this important parameter. One of the major highlights of the week will occur later in the session when the US Federal Reserve reveals its latest interest rate decision and accompanying statement. Expert consensus expects the Fed to maintain its present course of tapering its influential monthly purchasing program by reducing it by another $10 billion per month.

China will kick-off Thursday by issuing its Manufacturing Purchasing Managers’ Index (PMI) which is expected to reveal further contraction in the world’s second largest economy. The United Kingdom will then release its own PMI which is predicted to record minor growth by rising to 55.5 from last month’s 55.3.

Australia will present its New Home Sales on Friday. A declining result is forecasted following the substantial surge recorded in March which would exert increasing pressure on the Australian Dollar.  Next, the Eurozone will disclose its Manufacturing PMI which is expected to confirm a slight retraction from a recent high registered in January. The UK will then post its Construction PMI which should verify that this important sector continues to flourish. When Europe discloses its unemployment rate later in the session, a no change result is expected remaining at 11.9%. The USA will complete the week by publishing its vitally important labor reports for March. The Non-Farm Payroll is predicted to advise that about 200,000 new jobs were created last month while the unemployment rate should decline from 6.7% to 6.6%.

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