Week in Review

Geopolitical concerns rose to the surface towards the end of last week driving many stocks downwards. Investor confidence took another hit after the USA published a spate of economic indicators that missed analysts’ expectations. However, these late declines in equities still did not prevent the key US indices from registering their second week of consecutive gains epitomized by the S&P500 finishing within 2% of the record high it recorded during July. Although the markets weakened last Friday after emerging news disclosed a further deterioration in the Ukraine/Russia confrontation, many traders still consider such developments as just opportunities to buy at discounted prices. Consequently, the leading US stock exchanges produced mixed reactions with the Dow Jones Industrial Average plunging by almost 51 points; the S&P500 slumping by almost 1 point but the NASDAQ rising higher by almost 12 points.The USA released a batch of economic indicators last Friday indicating that its economic recovery may now be stalling. On the positive side, data revealed that the national factory output had increased during July and that the production of automobiles had risen at its fastest pace in almost 5 years. However, a key consumer confidence index, generated by the University of Michigan and Reuters, slumped during August to register its lowest level since last November.

Nevertheless, the major factor dominating proceedings last Friday was the Ukraine/Russian crisis. Investors adopted a more cautious stance after learning that a Russian armored diversion had been partially destroyed by Ukrainian forces after crossing the eastern border of Ukraine during the night. Earlier in the session, equities had risen on the hopes of a significant reduction in geopolitical tension. However, this optimistic mood immediately turned sour as a direct result of the Ukrainian attack causing the markets to plunge lower. They did pared most of their losses later in the day amid a lack of clarification concerning this issue.

Signs emerged last week confirming that Ukraine/Russia hostilities are now definitely influencing the economic recovery of the Eurozone. For example, data published revealed that the German economy had contracted during the second quarter of 2014. In addition, business confidence in Germany, the economic powerhouse of Europe, also took a direct hit specifically because of its close proximity to the Ukrainian conflict.  Prominent analysts summarized last Friday’s developments by advising that any further deterioration in the relationship between Russia and the Ukraine could result in the USA and Europe imposing even tougher sanctions on Moscow. Aggressive Russian counter-measures should then be expected.

What to Expect This Week

This coming week will witness the publication of a bout of key global economic indicators.  The United Kingdom will launch the week by announcing a key Housing Price Index for August late Sunday evening. Analysts are predicting a larger contraction will be recorded than the 0.8% drop registered in July. No major events are scheduled for Monday.

The Reserve Bank of Australia (RBA) will issue the minutes from its latest policy meeting. If this document confirms that the RBA is currently projecting a harmonious status that it should endorse recent statements aimed at calming growing fears about the health of the Australian economy. Great Britain will then declare key inflation data which could exert pressure on the British pound if it misses analysts’ expectations.  Later in the session, the USA will post its Consumer Price Index (CPI) for July which is expected to extend many consecutive months of recent gains. Japan will complete the day by releasing its Trade Balance for July. Expect consensus predicts another weak result increasing the prospects of additional stimulus from the Bank of Japan.

The Bank of England (BoE) will commence Wednesday by disclosing the minutes from its latest policy meeting. Despite recent BoE dovish statements, this document would indicate that hawkish members are now in favor of an imminent interest rate hike. The pivotal event of the week could then occur when the US Federal Reserve posts its own meeting minutes. The US Dollar could acquire fresh support if any unexpected hawkish tone is detected in this document.

On Thursday, China will present its PMI for August. Economists are forecasting a drop to 51.5 from last month’s 51.7 amid the recent publication of weak economic indicators. New Zealand will next declare its quarterly report on credit card spending. If a pullback is registered for the first time since the autumn of 2012, then expect the New Zealand dollar to weaken across the board. The Eurozone will then issue its PMI for manufacturing, service and composite which are expected to contract once again epitomized by an expected PMI composite decline to 53.4 from its previous 53.8. British Retail Sales for July is forecasted to reverse the disappointing figure generated in June by registering an increase of 0.4% compared to a 0.1% decline. A European consumer confidence indicator is also expected to slump from -8.4 in July to -9.1 during last month. Finally, the USA will announce its Existing Home Sales for July which is expected to counter three months of consecutive gains.

The UK will issue its Public Sector Finances for July on Friday which is predicted to disclose a further deterioration. The Canadian Retail Sales for July should register a 0.6% increase.

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