Major Events of Last Week
Investors endured a torrid time last week as the global stock markets registered lows not seen in many years. The key catalysts responsible for the largest bearish correction recorded this year were weak growth in the USA and Europe and a significant economic slowdown in China. Adding further to the gloom was escalating speculation that the US Federal Reserve will not hike interest rates in September, as previously expected. These worrisome developments prompted the primary US indices to crash last Friday exemplified by the Dow Jones Industrial Average plunging by just over 530 points; the S&P500 dropping by almost 65 points and the NASDAQ plummeting by nearly 172 points.
Market sentiment extended its slump last week epitomized by major global stocks descending sharply after China published a spate of disappointing economic indicators which badly missed analysts’ expectations. For example, the S&P 500, Dow and NASDAQ posted their biggest weekly declines in practically four years. This depressing situation deteriorated even further last Friday when China released data disclosing that the output from its massive manufacturing segment nose-dived at its quickest rate since 2009. This dismal result exasperated the adverse impacts already generated by the sudden devaluation of the Chinese Yuan the week before.
Prominent economist summarized these nerve-racking developments by advising that investors are now beginning to realize the real challenges presently confronted by the Chinese economy. They added that although the dramatic declines registered in both equities and commodities were of concern; panic should be avoided at all costs. This is because the markets have still only fallen about 8% from historic highs and that the last major correction occurred over 3 years ago
Nevertheless, festering uncertainties about the real health of the Chinese recovery is now expected to dominate trader sentiment over the coming weeks. The major fear is that the posting of any further unsettling news from the world’s second largest economy could trigger a worldwide slowdown. The Chinese Yuan also continued to weaken last week fueling the chaos even further.
The markets were particularly shaken after China announced that its Manufacturing Purchasing Managers’ Index (PMI) for August had fallen from its prior reading of 47.8 to 47.1 missing expectations of 47.7. This outcome was unquestionably disturbing as it was the worst reading recorded since the depths of the 2007/2008 financial crisis. In addition, this PMI registered its sixth consecutive month of contraction.
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What to Expect This Week
No key economic news is scheduled for release on Monday.
Germany will present the final version of its Gross Domestic Product (GDP) for the second quarter of 2015 on Tuesday. This figure is expected to confirm growth of 0.4%. Later, Germany will also disclose an important Business Sentiment Survey for this month which is favored to slump from its prior reading of 102.4 to 102.00 this time around. New Zealand will complete the day by revealing its trade balance for August. The national deficit is forecasted to expand dramatically as a direct consequence of declining global commodity prices.
On Wednesday, the USA will publish its Durable Goods Orders for July. This parameter should post expansion for the second consecutive month by rising 0.2% on a monthly basis.
Australia will launch Thursday by releasing its Private Capital Expenditure for the second quarter. A general lack of corporate investment is predicted to drag this figure lower by 2.5%. The USA will then issue the second draft of its GDP for the second quarter of 2015. This revision should verify that the US economy expanded at an improved rate of 3.2% compared to the initial value of 2.3%. At the same time, the USA will announce its initial jobless claims for the previous week. The outcome should validate that the number of American filing for unemployment benefits continues to trend lower. Japan will complete the day by releasing key inflationary data for last month. If these figures confirm that deflation is beginning to re-emerge, then such a development could prompt the Bank of Japan into contemplating fresh stimulus measures.
On Friday, Great Britain will declare the second estimate of its GDP for the second quarter which should ratify growth of 2.6% on an annual basis. The USA will terminate the week by proclaiming its Personnel Income and Spending for July. Both these indicators are forecasted to rise by 0.4%.
