Week in Review

The global stock markets extended their losses for the fourth consecutive day last Friday exemplified by the S&P500 registering its largest weekly decline since April. Festering concerns about the recent debt default by Argentina exerted pressure on investor sentiment by countering any positive impacts resulting from an encouraging US labor report. The US dollar reversed the gains that it captured against a basketful of other major currency pairs the day before after Friday’s unemployment figures provided the US Federal Reserve will sufficient leeway to retain its dovish stance for an extended period of time. However, geopolitical concerns dominated proceedings towards the end of last week prompting the stock markets to slump last Friday epitomized by the Dow Jones Industrial Average plunging by almost 70 points; the S&P500 inching lower by 5 points and the NASDAQ sliding downwards by 17 points.

The US Department of Labor posted its highly anticipated labor report last Friday disclosing that US employers had created 209,000 during July, which missed analysts’ expectations of 233,000. A more worrisome aspect was that the unemployment rate had unexpectedly increased last month to 6.2% from the previous 6.1%. However, prominent economists were quick to advise that although these figures were somewhat of a disappointment, they still clearly demonstrated that the US labor market was gaining traction.

They also emphasized the importance of minimum wage inflation resulting from a flat growth profile of average hourly earnings. They explained that the US Federal Reserve will have more headroom to maintain its benchmark interest rate at historic lows if wage inflation is stagnant or declining. The Fed monitors this particular economic indicator extremely carefully when devising its future guidance policy. For example, any slack in the national economy could prompt the US Central Bank to instigate an interest hike sooner-than-expected.

Nevertheless, despite the publication of key US economic data, investor attention was diverted towards geopolitical concerns, especially the debt problems of Argentine. Tension heightened even further last Friday after a US judge fiercely criticized Argentine for defaulting on its debt obligations for the second time in twelve years. He also ordered that negotiations between this nation and its debtors to commence as soon as possible in order to resolve this precarious situation. Analysts summarized the seriousness of this problem by explaining that the financial markets can often start panicking whenever a country defaults on its debts.

What to Expect This Week

This coming week will witness the publication of a sequence of important global economic indicators.

Australia will start the week by issuing its Retail Sales figure for June on Monday. This key parameter is expected to extend its declines for the fifth consecutive month which could help drive the Australian Dollar lower.

The Reserve Bank of Australia (RBA) will launch Tuesday by announcing its latest monetary easing policies and interest rate decision. If the RBA opts to implement no action, then such an outcome should be bullish for the AUD/USD. The Eurozone is then scheduled to disclose its Retail Sales for June. Analysts are currently predicting a 0.4% increase although this target may be difficult to achieve this time around. Later in the session, the USA will reveal its non-manufacturing PMI for July and is expected to strengthen for the fifth successive month by registering 56.6. New Zealand will then finish the day by presenting its latest labor report. After the publication of disappointing economic indicators lately, this document could well disappoint.

On Wednesday, Great Britain will declare its Manufacturing and Industrial Production numbers for June. Pundits are forecasting that last month’s disappointing results could be extended once again.

Australia will kick-off Thursday by posting its Employment Change and Unemployment Rate for July. Strong readings could provide a boost for the AUD/USD especially if the Reserve Bank of Australia makes no efforts to talk down its national currency. Next, the Bank of England will deliver its Interest Rate Decision. This event is expected to be muted by generating no new surprises. The European Central Bank (ECB) will then announce its own Interest Rate decision. The present Ukraine/Russian crisis could prompt the ECB to advise that fresh quantitative easing may now be imminent.

China will publish its Trade Balance for July on Friday which should match with market expectations. The Bank of Japan will subsequently advise on its latest Interest Rate decision which is forecasted to remain unchanged. No new monetary policies are expected to be implemented either. Finally, Canada will terminate the week by issuing its Employment Change and Unemployment Rate for July. Currently, economists are anticipating that 25.4k new jobs were created last month.

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