Major Events of Last Week
Last week produced some of the most dramatic price movements by the global stock markets since 2008. For example, the Dow Jones Industrial Average crashed by a staggering 1,000 points within one hour of opening last Monday before partially paring its losses as the session progressed. The key catalysts primarily responsible for inflicting such havoc were escalating concerns about the true health of the Chinese economy and persistent speculation about the precise timing of an interest rate hike by the US Federal Reserve. At the end of a turbulent week, the topmost US indices produced a mixed reaction typified by the Dow Jones Industrial Average falling by nearly 12 points; the S&P500 nudging upwards by just over 1 point and the NASDAQ edging higher by almost 16 points.
Investors were unquestionably on edge last Monday after they witnessed a stunning collapse in global equities. The prime culprit driving this sizeable bearish correction was growing anxiety about the Chinese economic recovery following the recent publication of a spate of worrisome economic indicators. For instance, the massive manufacturing sector of the world’s second largest economy posted its sixth consecutive monthly decline at the end of the previous week.
The subsequent plunges recorded by the world’s financial markets were so abrupt that the People’s Bank of China (PBoC) was forced to quickly intervene in order to avert further panic. The central bank responded by reducing reserve limits, trimming interest rates and injecting fresh liquidity into the Chinese banking environment. Additional action was then required towards the end of last week when Chinese authorities announced that national pension funds would soon commence investing about 2 trillion Yuan into equities and other asset types.
The raging debate about when the Fed will start tightening its monetary policy also had a substantial influence on last week’s proceedings. The prospects of a September interest rate oscillated vigorously and continuously through this period. Stanley Fischer, the Fed Vice Chairman, introduced a more positive tone for early action last Friday by advising that an increase was still in order depending on the quality of US economic data issued over the coming weeks.
Another prominent Fed committee member, James Bullard, postulated that at least one hike should be instigated before the end of 2015 because the performance of the US economy was practically immuned to geopolitical events, such as a Chinese slowdown. Although the markets succeeded in paring all the losses they suffered at the start of last weeks, analysts still stressed that the underlying problems have not yet been fully addressed.
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What to Expect This Week
New Zealand will launch events by presenting a key Business Confidence Survey for this month. This indicator is expected to rebound after plunging to register its lowest value in practically 6 years during July.
On Tuesday, China will deliver its Purchasing Manager’s Index (Manufacturing) for August. After last week’s extensive volatility, investors will await this release with some trepidation especially as this parameter is predicted to slide even deeper into contraction by recording a 49.7 result. Later, Australia will disclose its Building Approvals for July which could extend June’s worrisome slump. The Reserve Bank of Australia (RBA) will then announce its latest policy decisions. Although no changes are anticipated, analysts will study any accompanying statements for new signs of fresh dovish aspirations. Next, Great Britain will issue its Manufacturing PMI for this month which is forecasted to inch higher to 52.0. The USA will complete the session by posting major inflationary data for August. The ISM index is predicted to improve marginally to 52.8 despite the strong US Dollar and declining global demand.
Australia will kick-off Wednesday by declaring its Gross Domestic Product for the second quarter of 2015. Growth is expected to slide from 0.9% on a monthly basis to 0.4% this time around. The USA will then publish a major employment report for August which could supply important insights into the all-embracing Non-Farm Payroll (NFP) due for release on Friday. US employers in the private sector are estimated to have generated about 200k new jobs during the period.
On Thursday, Australia will supply its trade figures and retail sales for July. The slight improvements favored by most analysts will not prevent the RBA contemplating the introduction of additional stimulus measures in the imminent future. The European Central Bank will then proclaim its latest interest rate and monetary policy decisions, which should remain steady. The USA will complete the day by providing Trade Data for July. The US trade deficit is expected to widen from 43.8bn to 44.3bn primarily as a result of the strong Dollar.
The pivotal event of the week will then occur on Friday when the US Department of Labor discloses its all-prevailing NFP report for August. The key parameters currently forecasted are job growth of 220k; unemployment rate of 5.3% and average hourly earnings of 0.2% on the monthly basis. The quality of these figures will be vital to the Fed in determining the viability of a September rate hike.
