Major Events of Last Week
The markets endured a torrid time last week after China dramatically devalued the Yuan on Tuesday. The People’s Bank of China (PBoC) was prompted to implement such an action following the recent release of a spate of disappointing national economic data. Prospects of a September interest hike by the US Federal Reserve were boosted late last week after the USA posted a key economic indicator which surpassed analysts’ expectations. A resolution for the Greek debt drama could now be imminent after Athens agreed to comply with strict stipulations last Thursday night. The key US indices finished the week on a strong note epitomized by the Dow Jones Industrial Average climbing almost 70 points; the S&P500 inching upwards by nearly 9 points and the NASDAQ edging higher by just over 25 points.
Investors were subjected to intense pressure and uncertainty during the course of last week after the PBoC opted to suddenly devalue its national currency by 3%. Global equities subsequently crashed exemplified by the MSCI All world Index recording a final weekly loss of 0.6%. Commodities were also hit hard with crude oil prices crashing to their lowest levels in almost 6 years. Emerging market currencies, such as the Turkish lira and South African Rand, became particularly vulnerable so that they subsequently plummeted to register historic lows.
The situation did eventually stabilize as the week drew to an end after the PBoC implemented measures to restrict further declines in its national currency. Prominent economists summarized the situation by advising that time is now needed to assess just how effective the PBoC measures will be at re-establishing calm and confidence in the markets.
The USA confirmed that its economy was still acquiring traction by posting better-than-expected economic data last Friday. Specifically, US industrial output grew during July at its fastest rate in eight months by rebounding from its prior reading of 0.1 to 0.6% this time around. This impressive result was primarily achieved by a strong surge in the auto section. This performance unquestionably bolstered expectations that the Fed will now hike interest rates during September.
A meeting of Eurogroup financial ministers will take place over this coming weekend which could finally produce a solution to the Greek debt crisis following many months of acrimonious negotiations. Consequently, Athens is now on the brink of receiving a third bailout of about 85 billion euros which it desperately needs to avoid national bankruptcy and to retain its valued membership of the Eurozone. However, important issues still need to be addressed especially defining the precise role of the International Monetary Committee in this process.
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What to Expect This Week
No important releases are scheduled for Monday.
The Royal Bank of Australia (RBA) will launch Tuesday by presenting the minutes from its last policy meeting. Analysts will be keen to study this document in order to discover why the RBA altered its tone so dramatically at its last meeting by adopting a more hawkish stance. The United Kingdom will then announce key inflationary data by disclosing its Consumer Price Index (CPI) for July. This parameter is expected to extend its decline for the second consecutive month. The USA will complete the session by revealing its Building Permits for last month. Low mortgages rates and steady job growth is expected to support growth of 1,200k.
On Wednesday, the USA will publish its CPI for July which is forecasted to rise to 0.2% from 0.1% on an annual basis. This inflationary result is very important as it will be assessed by the Fed as one of its primary items in determining the optimum month to hike its benchmark interest rate. The pivot event of the week will then occur when the Fed issues the minutes from the last meeting of the Federal Open Market Committee (FOMC). Investors will scour this document very carefully for any clues about when exactly the Fed will start implementing a new monetary tightening policy.
Great Britain will post its Retail Sales figure for July on Thursday. Expert consensus is presently favoring a monthly increase of 0.2% and an annual drop to 4.1%. The USA will next declare its Unemployment Claims which should confirm that about 270,000 Americans submitted new claims for benefits during the week ending 9th August. Later, the USA will also present an important Manufacturing Index for this month which is expected to strengthen from 5.7% to 7%. If such an outcome is confirmed, then it will help underpin the case for a September rate hike by the Fed.
Canada will bring the week to an end by proclaiming its CPI for last month. If a poor result implies that deflation is beginning to resurface, then the Bank of Canada may adopt a more dovish stance increasing the prospects for additional interest rate cuts.
