Major Events of Last Week
The markets recorded a fourth week of consecutive declines as stocks crashed last Friday erasing almost all of their Thursday’s gains. Investor fears were dominate exemplified by the Dow Jones Industrial Average plunging by over 90 points; the S&P 500 falling by almost 8 points and the NASDAQ dropping by just over 16 points.
After an extensive bull run during 2013, the markets recorded historic highs in May. However, significant concerns that the global central banks are poised to trim back their present quantitative easing policies is now forcing investors to re-assess their investments in risky assets, such as equities. Consequently, in the last month the markets have entered a serious corrective phrase which is likely to continue until the central banks explicitly defined their stimulus intentions.
For example, probably the most dominating development of last week was the unexpected decision of the Bank of Japan (BoJ) to restrict from instigating any extended measures to support its current monetary easing policies. As this action was considered to be a done deal by many quarters, puzzled investors accused the BoJ of blatant miscommunication. This surprising outcome was sufficient to inject substantial volatility in the markets during the remainder of last week.
Anxious investors were also nervous about the next policy meeting of the US Federal Reserve, which is scheduled to be held this coming Tuesday and Wednesday. This is because the Fed has been instrumental in driving the Stock Markets higher especially since the introduction of its dynamic asset buying program. Lately, leading officials of this central bank have been issuing conflicting statements about when the tapering of this influential stimulus measure will commence.
However, many prominent analysts are predicting that no such moves will be announced this week despite the release recently of a promising US Labor report and better-than-expected US economic indicators. They also advised that they expect the Fed to continue supporting its current policies until the end of 2013. If these predictions prove to be valid, then you can anticipate that the markets will carry on experiencing high levels of volatility, at least, for the imminent future.
What to Expect This Week
The Eurozone is scheduled to publish very important economic indicators this coming Thursday when it will post its flash Purchasing Managers surveys. Analysts are forecasting that these reports will disclose an improvement epitomized by the primary figure climbing from 47.7 in May to just over 48.0 this month.
However, although such a result would be an encouraging sign it would still be residing at uncomfortably low levels. If confirmed, then this number would imply that the economy of the currency bloc is beginning to expand, albeit at a snail’s pace. Other key events this week will be the Bundesbank posting its monthly report on Monday and a speech to be made by Mario Draghi, the President of the European Bank, on Tuesday.
The major highlight of this week will be, without doubt, the two-day monthly meeting of the Federal Open Market Committee (FOMC), which will commence on Tuesday. At the end of this conference, the Fed will present a summary of its new economic forecasts together with an accompanying statement at 2.00pm EST on Wednesday. Thirty minutes following these releases, a press conference will be conducted by Ben Bernanke, the Fed Chairman.
Economics are predicting that the Fed will take this opportunity to clarify its future intentions concerning its monetary easing policies. Investors will be delighted if such an eventuality occurs because increasing uncertainties have been the prime catalyst behind producing such high volatility in the markets in recent weeks. However, the general consensus is that the Fed will hold back on instigating any tapering measures. The USA is also scheduled to release other important economic data over the coming days. Housing Starts and the Consumer Price Index will be issued on Tuesday followed by the Existing Homes Sales and the Weekly Jobless Claims on Thursday.
