Week in Review

Although the world stock markets basically advanced within well-defined horizontal channels last Friday, they were still on course to register a fourth week of consecutive gains. During the earlier part of the session, the Eurozone posted key inflation data which practically met analysts’ expectations. Consequently, prospects diminished that the European Central Bank will now instigate new monetary easing policies next week in order to bolster the region’s faltering economic recovery. Equities did receive a boost later in the day when the USA published another spate of better-than-expected economic indicators.

However, investors continued to adopt caution amid escalating geopolitical tensions. As such, the leading US stock indices essentially trended water last Friday exemplified by the Dow Jones Industrial Average drifting lower by 12 points; the S&P500 edging higher by just over 6 point and the NASDAQ rising by nearly 22 points.

The USA released economic data last Friday which gave investor sentiment a solid boost. Although consumer spending did slump during July to register its first decline in over six months, economists deduced that this reversal should just be temporary before a positive rebound occurs. They based this conclusion on the publication of a major consumer confidence index for August which hit levels not observed since 2007.

Another release demonstrated that the manufacturing output within the US Mid-West states had surged last month providing further credence to the viewpoint that the US economic recovery is definitely acquiring bullish momentum. Prominent analysts summarized these results by stating that the stock markets now have the potential to extend their gains for the fifth successive year in a row despite overvalued signs beginning to emerge. They added that although investors are concerned about a major correction, the continuous posting of positive fundamentals persists in driving equities higher.

Earlier on Friday, Germany issued key inflation figures which were in-line with expectations. This result significantly suppressed speculation that the European Central Bank will be forced to activate new stimulus measures next week in order to counter the threat of deflation and bolster the flagging economy of the currency bloc. Consequently, the euro was able to rally against other major currencies before paring its gains later in the session. The single currency has now slumped just over 1.5% during the last fortnight amid growing concerns that European economic growth will be adversely impacted by the escalating Ukraine/Russia conflict.

What to Expect This Week

Numerous key global economic indicators will be posted over the coming days. The week will commence with China presenting its Manufacturing PMI for August on Monday. Investors will be looking for this parameter to extend its gains for the third consecutive month. Later in the session, the Eurozone will announce its own Manufacturing PMI. This figure may disappoint as a direct consequence of the Ukraine/Russia confrontation. Finally, Great Britain is scheduled to issue the exact same indicator. A strong number could boost the British Pound by helping it pare recent losses. On Tuesday, the Reserve Bank of Australia (RBA) will declare its interest rate decision and latest Policy Statement. Economists are expecting a quiet affair as most key economic indicators released in recent weeks have basically hit their mark.

Australia will disclose its Gross Domestic Product for the second quarter of 2014 on Wednesday which should strengthen once again for the fourth time in a row. China will next reveal its Services PMI for August. If a value below 50 is generated for the first time ever, then an ensuing investor panic could ignite a serious market sell-off. The Eurozone will subsequently deliver its own Service PMI for August which could provide valuable insights into the true health of the European economic recovery. The British Services PMI will next be presented and expectations are for a strong number in the high 50s. The Bank of Canada will finish the day by proclaiming its Interest Rate Decision and future guidance Policy. These releases should be dominated by dovish rhetoric.

The Bank of Japan will launch Thursday by posting its Monetary Policy. A ‘No Change’ verdict is forecasted. Australia will next release its Retails Sale figure for August. A minor increase of 0.4% is expected. Germany will then publish its Factory Orders for July which should record a third monthly loss amid a deteriorating Ukraine/Russia crisis. Later in the session, the Bank of England will issue its Interest Rate Decision which should remain fixed. The USA will produce the key ADP labor report (August) for its private sector which will be used to predict the US Non-Farm Payroll release on Friday. Subsequently, the European Central Bank will announce its Monetary Policy Statement supported by a Press Conference. Despite growing speculation in recent weeks, no new stimulus should be introduced this time around. Finally, the USA will disclose its non-Manufacturing PMI for August. Another strong performance is expected.

The pivotal event of the week will occur on Friday when the USA presents its vitally important Non-Farm Payroll (NFP) figure and Unemployment Rate for August. Will the NFP print a 200k+ result for the 7th consecutive month? At the same time, Canada will also release the same labor parameters. Slightly over 10,000 jobs are expected to have been created in August.

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