Major Events of Last Week
Global equities rallied last Friday amid growing optimism that Greece could now secure new financial aid from its international creditors allowing it to avoid both financial ruin and from exiting the Eurozone. Janet Yellen, the Chairperson of the US Federal Reserve, delivered an important speech late last week advising investors that the US Central Bank was still on course to hike interest rates during 2015. However, she warned about the persistent weakness in the US Labor market and that the national jobless rate needs to decline, as a priority, in order to create a more robust and stable economic environment. The major US indices surged upwards last Friday epitomized by the Dow Jones Industrial Average soaring just over 240 pips; the S&P500 rising by almost 30 point and the NASDAQ climbing by nearly 86 points.
Greece successfully delivered a new set of reform proposals late last week which it hopes will convince its international creditors to provide urgently needed financial aid capable of preventing a national economic collapse and enabling it to retain its Eurozone membership. This key document was met by a mixed set of reactions. For example, Germany emphatically stressed that debt restructuring was still not a viable option. As Germany is one of Greece’s largest creditors, this announcement seriously and immediately devalued any positive impacts that the new plan possessed.
In contrast, Francois Hollande, the French president, praised the new proposals by stating that he considered them to be both credible and serious. The head of the Eurogroup, Jeroen Dijsselbloem, also issued supportive comments by describing the plan as a ‘thorough piece of text’ although he refrained from adding any further details or insights. A crucial meeting of Eurozone financial ministers will now convene over this coming weekend in order to assess the viability of the Greek plan as the basis for a new aid package.
Janet Yellen adopted a more hawkish- than- expected stance during a speech last Friday by assertively advising that the Fed will definitely hike interest rates before the end of this year. However, she abstained from stating whether she expects just one or numerous hikes to be instigated during this period. She said that the US Central Bank was now positioned to implement such an important action because it anticipates that the US economy will continue to strengthen throughout the remaining months of 2015. She further informed that the Fed had assessed with confidence that US inflation will bounce back towards its 2% target within the next few years. She did, however, caution that the present low unemployment rate does not truly reflect the full labor slack.
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What to Expect This Week
The following key economic indicators will be published this coming week. No major economic releases are scheduled for release on Monday.
On Tuesday, the United Kingdom (UK) will present both important inflationary data and labor statistics. Consumer Price Index (CPI) is expected to post a moderate annual increase from 0% to 0.1% and an unchanged core value of 0.9%. At the same time, a keenly awaited labor report for the second quarter of 2015 should disclose that UK unemployment rate remained steady at 5.5% but that the number of new jobs created during the period slumped from its prior reading of 114k to 35k this time around. Germany will then post a prominent investor sentiment gauge. The ZEW is expected to slip lower as a direct consequence of the Greek debt crisis. The USA will next reveal its Retail Sales for June which is forecasted to extend May’s stellar performance by rising 0.3%. A stronger result could boost the US Dollar.
The Bank of Japan (BoJ) will convene its monthly policy meeting on Wednesday which should be a ‘non-event’ since no changes or surprises are in the offering. However, the accompanying press conference could provide vital insights into whether the BoJ is currently contemplating any new stimulus measures in order to counter last week’s chaos on the Chinese stock markets. China will complete the session by proclaiming its Gross Domestic Product (GDP) for the second quarter of 2015. Economists are forecasting a poor performance exemplified by this key indicator contracting from 7% to 6.8%; its lowest value since 2009.
The Eurozone will launch Thursday by declaring the final revision of its CPI for June, which should remain steady at 2%. Later, the European Central Bank (ECB) will conduct its monthly policy meeting which should conclude by confirming no change to either its benchmark interest rates or new quantitative easing program. The preceding press conference could provide more excitement especially if the ECB President, Mario Draghi, addresses the Greek debt drama.
On Friday, the USA will declare its CPI for June. The headline rate should register growth of 0.2% compared to its prior reading of 0%. Analysts will be more interested in the core rate which is forecasted to increase from 1.67% to 1.8%. Such a result would definitely bolster prospects of a rate hike by the Fed as early as September. The USA will then terminate the week by announcing a key Consumer Sentiment Index. Another positive performance is expected epitomized by this parameter climbing from 96.1 to 96.5.
