Major Events of Last Week
Investors were taken aback towards the end of last week when Great Britain posted major economic data for July which bolstered the prospects that it was now standing on the brink of a new recession. As both the dramatic contractions in UK servicing and manufacturing outputs could be directly attributed to the recent Brexit vote, they are possibly the first harbingers of what may now lie ahead. Prominent economists summarized these worrisome developments by advising that they were primarily disturbed by the sheer size of the hit to the servicing sector, especially as it is the primary engine driving UK economic growth. They warned that if such figures are replicated again in coming months, then the United Kingdom will enter a serious recession before the end of this year.
Sterling subsequently crashed in response to these data releases by plunging to lows last seen almost 31 years ago. However, the weaker pound did provide an immediate benefit by driving British equities upwards to resister their highest levels in nearly 11 months, epitomized by the FTSE 100 rising by practically 0.4% last Friday. In comparison, the Eurozone leading index slide by 0.1%; the German DAX trended water which the French CAC 40 climbed by 0.2%. The European economy also came under stress after data issued last Friday disclosed that growth had slowed significantly last month by its largest amount in fifteen months.
Oil prices are now starting to experience excessive pressure which could see then enter a new spiral of decline over the coming months. Although there are hopes that global over-production may soon start to recede, excessive stockpiles could still counter such positive developments. Consequently, many experts have now concluded that all hopes of a more stabilized oil market during the second part of 2016 are mere folly. In fact, possibilities now exist that higher output by Middle East producers could even intensify over-supply woes in the short-term.
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What to Expect This Week
Germany will kick-off Monday by delivering a prominent economic survey which should linger about its critical 109 mark. However, risks are to the downside amid festering Brexit concerns. The USA will then present its latest ‘New Homes Sales’ which should confirm that the vitally important housing sector is starting to emerge from a prolonged recession.
On Tuesday, Australia will disclose key inflationary data. If the ‘Consumer Price Index’ (CPI) records another negative value, then such a result could provide the Reserve Bank of Australia with enough justification to cut interest rates next month.
Great Britain will reveal its Gross Domestic Product (GDP) for the second quarter of 2016 on Wednesday. Economists are concerned that this parameter could verify that the recent Brexit vote has caused the UK economy to slump towards a recession. The USA will then release its ‘Durable Goods Orders’ for June. A rebound from May’s dismal number is required in order to provide confirmation that the US manufacturing section is now acquiring impetus. A pivotal event of the week will then occur when the US Federal Reserve announces its latest interest decision and monetary policies. Although a ‘no-change’ verdict is widely anticipated, traders will still be keen to discover if the Fed will adopt a more hawkish tone in response to an improving US economic performance.
On Thursday, the Eurozone will post a premier ‘Business Sentiment Index’ which is predicted to beat its previous reading of 104.4. The USA will then publish its ‘Jobless Claims’ for the week ending 24th July which should verify that the number of Americans filing first claims for unemployment benefits continues to reside within the long-standing range of 250k to 290k. Japan will then issue its latest ‘CPI’ and ‘Industrial Production’ figures. The former should rebound from May’s disappointing -0.4% while the latter should counter its previous worrisome decline of -2.3%. Australia will finish the session by divulging its ‘Producer Price Index’ which is expected to remain close to its -0.2% mark.
France will provide first sighting of its GDP for the second quarter of 2016 on Friday, which should record growth of 0.5%. The Eurozone will next produce important inflationary data for July. If this indicator fails to beat June’s 0.1%, then such a weak performance could incite the European Central Bank into considering the introduction of new stimulus measures within the imminent future. The USA will finally terminate the week by releasing its highly awaited GDP for the second quarter of 2016. The US Dollar will receive a boost if growth exceeds the currently favored forecast of 1.1%.
