Financial Markets – Preview for Week Starting 14th August 2016

Major Events of Last Week

Hopes of a robust US economic rebound during the second half of 2016 were dented last Friday after key data indicators disclosed that American consumer confidence had slumped during July. Retail Sales missed analysts’ expectations last month amid declining consumer spending generated by Americans opting to reduce their outgoings on items, such as clothing and luxury goods. Investor mood was soured even further as receding energy and servicing costs prompted the US Producer Price Index to register its largest drop during July in practically a year. The foremost US indices produced mixed reactions last Friday demonstrated by the Dow Jones Industrial Average sliding 33 points lower; the S&P500 dropping 1 point while the NASDAQ rose by 4 points.

The US Department of Commence advised late last week that Retails Sales are remained unchanged during last month following an upwardly revised increase of 0.8% for June and compared to economists’ July prediction of 0.4%. The core figure, excluding food services, gasoline, building materials and automobiles, also registered 0% after climbing nearly 5% during June and again missing the favored forecast of 0.3%. These disappointing results incited both the US Dollar and Wall St to slump immediately after their publication.

Unfortunately, the rot did not stop there as the US Department of Labor informed, in a separate report, that the ‘Producer Price Index’ (PPI) felled 0.4% during July to register its first decline since last March and its biggest drop since the autumn of last year. The significance of this performance can be appreciated by noting that PPI grew by 0.2% during June. On an annualized basis, a decrease of 0.2% was attained last month compared to the 0.3% increase achieved during the previous month. Economists had predicted a monthly increase of 0.1% for July and 0.2% growth over the last 12 months.

These readings are very important because they could now convince the US Federal Reserve to adopt a more cautious stance by stalling any further interest rates hikes until 2017 and even beyond. This would be primarily because cheap oil prices and a strong US Dollar are presently exerting sizeable downward pressure on inflation preventing it from advancing towards the Fed’s designated target of 2%. For instance, last Friday’s disappointing figures definitely reduced the probabilities of a hike in December; the previously preferred timing of many prominent economists. Specifically, expectations of a December rate increase slid from 47% before the ‘Retail Sales’ and PPI were issued last Friday to just 43% after their release.  A distinctive cool-down in US consumer spending was identified to be the major catalyst behind this decline.

Check out our independent review of MarketsWorld for a good choice of trading platforms. Trade from as little as $1 with our tried and tested brokers with the lowest minimum deposits in the market.

What to Expect This Week

No major global events or data releases are scheduled for Monday.

Great Britain will present key inflationary data on Tuesday which could provide vital insights into how Brexit is influencing the British economy. Both the ‘Consumer Price Index’ (CPI) and ‘Producer Price Index’ (PPI) should come in about their 0.2% marks. Later, the USA will declare an important housing statistic and its own CPI for July. ‘Housing Starts’ is expected to better its prior print of 1.189 million units. CPI needs to surpass June’s reading of 0.2% in order to quell the anxiety generated by last Friday’s dismal ‘Retail Sales’ and PPI numbers.

On Wednesday, the United Kingdom will disclose its Labor Report for last month. Economists are hoping that British employers have succeeded in creating more than the insipid 400 jobs generated in June although Brexit could again have a significant bearing on the outcome. A pivotal event will then occur during the afternoon, EST, when the US Federal Reserve releases the minutes from the last meeting of the Federal Open Market Committee. Investors will study this document with intent in order to glean any new insights into when the Fed will most likely hike interest rates again. Australia will complete the session by revealing its ‘Labor Force Survey’ for last month. The unemployment rate is widely anticipated to remain unchanged at 5.8%.

Great Britain will commence Thursday by posting its ‘Retail Sales’ for July. Expert consensus favors a rebound from June’s worrisome decline of 0.9%. Later, the USA will issue its ‘Jobless Claims’ for the previous week, ending 14^th August, which should once again verify that the number of Americans filing first claims for unemployment benefits remained within the longstanding range of ‘240k to 290k’. At the same time, the USA will publish a prominent ‘Business Confidence Survey’. A recovery from June’s -2.9 result is predicted this time around.

Canada will terminate the week by proclaiming its CPI and ‘Retail Sales’ for July. The former should hover about its 0.2% level while the latter should outstrip its previous figure by posting an increase of 0.3% or better.