Major Events of Last Week
Last week’s trading was again dominated by intense speculation about when the US Federal Reserve will most likely instigate its first interest rate hike since December 2008. Indeed, the pivotal event during this period was unquestionable the publication of the minutes from the last policy meeting of the Federal Open Market Committee (FOMC), which surprised investors by disclosing that a June hike was still a feasible option. This debate was further intensified last Friday by the release of key US inflationary data and hawkish comments issued by a prominent Fed committee member. The major US indices rallied towards the end of last week epitomized by the Dow Jones Industrial Average soaring by almost 75 points; the S&P500 inching higher by just over 8 points and the NASDAQ climbing by almost 15 points.
The USA posted a key economic indicator last Friday disclosing that import prices slumped during March by recording their largest 12-month drop in almost 6 years. Official spokespersons subsequently advised that this decline was primarily caused by rising petroleum costs. Specifically, the US Department of Labor stated that import prices fell last month by 0.3% from their + 0.2% value posted in February. This result added notable credence to the viewpoint that the US Federal Reserve may now not implement an interest rate as early as June since inflation continues to operate well below the Central Bank’s designated target of +2%.
The major economic developments that occurred last week definitely complicated the discussion about when the Fed will most likely hike. For example, on the one hand a number of Fed committee members have openly expressed a willingness to entertain a rate increase as early as this coming summer because they consider that current inflation negativity is only temporary in nature. In contrast, many prominent economists reject this viewpoint by asserting that monetary tightening will not commence until 2016 because of a significant US economic slowdown during the first quarter of 2015. In addition, they highlight the uncertainties of other important contributing factors, such as a strong US Dollar; persistently declining oil prices and a faltering global economic recovery.
Fed deliberations were further exacerbated last Friday when Jeffrey Lacker, a voting committee member of the US Central Bank, delivered a hawkish speech. Specifically, he emphasized the need for the Fed to earnestly assess the benefits of hiking as early as June. He also stressed that should such a positive decision eventually prove to be unwarranted then there would be no disgrace in a corrective reversal. His hawkish stance was primarily based on an improving US unemployment rate and robust consumer spending.
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What to Expect This Week
The following economic data will be published over the coming days.
The Bank of Japan will commence the week by presenting the minutes from its last Monetary Policy Meeting on Sunday. This document could well provide investors with some interesting insights into BOJ current deliberations.
No important global indicators will be posted on Monday.
On Tuesday, the United Kingdom will disclose its Consumer Price Index (CPI) for last month. Some economists are concerned that this parameter could confirm that UK inflation has already evolved into deflation. The USA will then reveal its Retail Sales for last month, which is expected to rebound following three consecutive months of declines.
China will launch Wednesday by declaring its Gross Domestic Product for the first quarter of 2015. Commodity currencies, such as the Australian and New Zealand Dollar, could receive a substantial boost if a value of 7% or above is printed. Later, the European Central Bank will announce its latest Monetary Policy decision and hold a supporting Press Conference. No major surprises are expected this time around because the ECB has only just launched a massive new stimulus package. The Bank of Canada will complete the session by delivering its own Interest Rate Decision and Future Guidance Policies. No interest rate cuts are anticipated on Wednesday after Canada produced a relatively encouraging labor report last week.
Australia will publish its Unemployment Rate and Employment Change for March on Thursday. If these key labor statistics miss analysts’ expectations, then such an outcome could be the cue for the Reserve Bank of Australia to cut interest rates within the imminent future.
On Friday, the Eurozone will proclaim its Consumer Price Index for last month. A disappointing reading could exert fresh pressure on the euro. Great Britain will subsequently release its labor report for March, which is forecasted to extend its gains for the fifth successive month. The USA is then scheduled to issue its Consumer Price Index for March. If this major inflationary data generates a positive reading, then the Fed could be encouraged to hike earlier than later. Finally, the USA will disclose a primary Consumer Sentiment Index for April, which is favored to post an improvement for the second straight month.
