Week in Review
Global equities basically trended water last Friday after enduring a volatile week during which they recorded substantial gains. Although stock prices pared initial gains towards the end of last week amid declines within the technological sector, analysts were quick to advise that the underlying trend of growth was still healthy and intact. The Dow Jones Industrial Jones and the S&P500 both succeeded in registering historic highs earlier during the trading period after investor confidence was boosted by Scotland voting to remain an integral part of the United Kingdom. In a direct response to these developments, the leading US indices produced a mixed reaction last Friday typified by the Dow climbing by slightly over 12 points; the S&P500 inching lower by almost 1 point while the NASDAQ fell by nearly 14 points.
The pivotal event of last week occurred during Wednesday afternoon, EST, when the US Federal Reserve disclosed its latest forward guidance policy. The markets were quite surprised by the US Central Bank adopting a more dovish stance than anticipated. Prior to this key event, speculation was rife that the Fed would adopt a hawkish posture by supporting an early interest rate hike. However, this expectation proved not to be the case when Janet Yellen, the Fed Chairperson, confirmed during an accompanying Press Conference that interest rates would be retained at low levels for a considerable time. She did inject some degree of hawkish tone by asserting that when rate increases do commence they will then climb at a quicker pace than previously advised.
These declarations essentially set the tone for the rest of the week by prompting both the stock markets and the US Dollar to strengthen. The other major issue which had global traders on tenterhooks was a major referendum held to decide whether Scotland would remain part of the United Kingdom or would it acquire its own independence. A significant buildup in tension was generated throughout the entire week as leading polls revealed that the outcome of this event would be very tight call. However, a slight swing towards the ‘Yes’ vote last Thursday produced a sigh of relief throughout the global markets, which were preparing for financial chaos in the event of a separatist victory.
Prominent economists summarized the dramatic developments of last week by stating that the Fed’s accommodating policies should now firmly undermined equities and the US Dollar for the foreseeable future. They added that the major risks to this rosy picture are now geopolitical upsets and any surprise interest rate hikes by the world’s major central banks.
What to Expect This Week
A spate of premier economic indicators is scheduled for release over the coming days, as now defined.
Mario Draghi, the President of the European Central Bank (ECB), will testify before the Euro Parliament on Monday. The major concern should be the failure of the ‘Targeted Long Term Refinancing Operations’ (TLTRO) initiated by the ECB recently. As the lending associated with this program has been much lower than expected, further quantitative easing should now be a key topic for discussion. Later, the USA will release its Existing Home Sales figure for August which is expected to record a fourth consecutive month of gains.
On Tuesday, China will deliver its key inflation data by disclosing its PMI number for September. A further decline after last month’s worrisome result could signal economic contraction. The Eurozone will then publish a spate of PMIs for a number of primary economic sectors. Economists are worried that the September results could register values below 50, which could ignite a strong bearish sentiment, if confirm. Great Britain will then reveal its Mortgage Approvals for August and another positive increase is predicted.
The UK will also declare its Public Sector Net Borrowing figure for August which should register a 10.3B gain. Canada will subsequently post its Retail Sales for July and a negative forecast is currently favored. New Zealand will complete the day by issuing its Trade Balance for August. Analysts are predicting an extension of the previous four months of successive declines.
Germany will launch Wednesday by publishing a key IFO report concerning its Business Environment, Current and Future Expectations. Pundits are forecasting another decline from its prior reading of 106.3 to 105.9 as the Ukraine/Russian crisis continues to weigh on customer and business sentiment. The USA will next release its New Homes Sales for August. A poor result could cast fresh doubts on the true health of the US economic recovery.
The USA will post the only major economic indicator on Thursday when it announces its Durable Goods Orders number for August. After last month’s astonishing increase of 22%, expert consensus is anticipating a major correction with a negative value of almost 18% a viable possibility. There are no key events scheduled for Friday.