Major Events of Last Week
Last week ended in a turbulent fashion exemplified by the financial markets suffering severe losses. A number of major bearish catalysts emerged including disappointing US corporate earnings, better-than-expected US economic data, new Chinese regulations and fresh Greek debt uncertainties. Prominent analysts summarized these dramatic developments by stating that investors will now have to quickly re-assess their risk exposure after enduring such a direct hit. For instance, they will need to determine whether the markets will now undergo a significant reversal or just a temporary correction. The leading US indices tumbled last Friday demonstrated by the Dow Jones Industrial Average crashing by just over 275 points; the S&P500 dropping by nearly 24 points and the NASDAQ plunging by practically 76 points.
The US Department of Labor published a key inflationary indicator last Friday disclosing that its Consumer Price Index (CPI) increased during March by 0.2%. Although this result missed economists’ predictions of 0.3%, it still helped fuel the on-going debate about when the US Federal Reserve will most likely instigate its first interest rate hike since December 2008. This is because the CPI is one of the key parameters evaluated by the Fed when determining its future guidance policies.
Global equities came under sizeable pressure after a spate of US companies posted disappointing earnings reports for the first quarter of 2015. For instance, Honeywell witnessed its shares slumped by 1.6% while those of American Express crashed by 4.3%. Both firms blamed the strong dollar for their poor quarterly performances. Analysts were quick to stress that these results definitely indicate that investors must now start focusing their attention on business fundamentals as opposed to the monetary easing deliberations of international Central Banks.
The release of a Chinese report divulging a major crackdown on margin lending also subjected the world’s financial markets to considerable stress last Friday. Prominent regulators stressed cautious after Chinese shares recorded seven-year highs last week fuelled by record investor borrowing. This move by China to restrict stock speculation via the use of excessive lending is another indication that the recent global rally may now be petering out.
The plight of Greece also had investors scrambling for cover towards the end of last week. Athens confirmed that it now urgently requires nearly 2 billion euros from its national public sector in order to service vital liabilities, such as pensions and civil service wages. Even if this objective is achieved, Greece may then not be able to comply with its next bailout repayment of 1 billion euro, scheduled for the first half of May.
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What to Expect This Week
The next key economic data will be released globally during next week.
New Zealand will commence proceedings by presenting its Consumer Price Index for the first quarter of 2015 on Sunday. Economists are presently predicting a bounce back into positive territory after four successive months of misses.
No data will be released on Monday.
On Tuesday, Germany will disclose a key Economic Sentiment Survey for April, which should provide the euro with a boost if it surpasses analysts’ expectations. Later in the session, Japan will reveal its Trade Balance for March. An improvement over the previous reading is anticipated.
Australia will launch Wednesday by declaring its Consumer Price Index for the first quarter of 2014. If a deflationary outcome is confirmed, as many economists are forecasting, then expect the Australian Dollar to falter across the board. Next, the Bank of England will proclaim the Vote Count of its Monetary Policy Committee. This announcement should be a ‘non-event’ as no new surprises are expected. The USA will then release its Existing Home Sales for March. If a stronger-than-expected figure is delivered after four straight months of weakness, then the US Dollar could reclaim its bullish dominance.
On Thursday, China will publish its initial Manufacturing PMI for April. Another reading below 50 could verify that the Chinese economic recovery is starting to encounter a significant slowdown. The United Kingdom is subsequently scheduled to post its Retail Sales result for March. Expert consensus is currently favoring a 0.4% increase. The USA will complete the session by issuing its New Homes Sales for last month. Investors are hoping that the seven-year high recorded in February can be extended this time around.
The Eurogroup will conduct an all-day meeting on Friday and the center of its attention will be the Greek debt crisis. If the unthinkable happens and Greece does eventually default on its bailout payment obligations, then the scene will be set for the euro to crash towards parity against the US Dollar during the near-term. The USA will terminate the week by disclosing its Durable Goods Orders for March. This event could be market-moving especially if the outcome deviates from the predicted +0.7% in any way.
