Major Events of Last Week
The financial markets experience sizeable bearish pressures last Friday as they plummeted to probe two-month lows. The major catalysts behind this slump were deteriorating oil prices and a weakening Chinese Yuan. The USA posted a spate of encouraging economic indicators late last week suggesting that the US economy is still gaining traction. Investors will now turn their attention to an historic event which should occur next week. After almost a decade, the US Federal Reserve is on the verge of hiking interest rates which will herald-in a new phase of monetary tightening. The leading US indices plunged last Friday typified by the Dow Jones Industrial Average crashing just over 300 points lower; the S&P500 falling by almost 40 points and the NASDAQ dropping by nearly 110 points.
The oil markets were subjected to increasing levels of volatility late last week prompting them to test lows last seen seven years ago. This vital commodity has experienced sizeable pressure ever since the Organization of the Petroleum Exporting Countries (OPEC) opted not to cap production output during a recent meeting. The situation was stressed even further last Friday when the International Energy Agency (IEA) warned that excessive oil supplies could saturate the markets even more during the first quarter of 2016.
Traders were also traumatized by the plight of the Chinese Yuan at the end of last week after it plunged to record a 4.5 year low by posting its largest weekly loss in practically a decade. Speculation immediately intensified about just how the People’s Bank of China (PBoC) will now respond to this worrisome development. Specifically, economists need to know how far the PBoC will permit its national currency to depreciate before instigating corrective actions.
The USA published key economic data last Friday which either complied with or surpassed analysts’ expectations. For example, the US Department of Commerce advised that Retail Sales for November rose by 0.6% compared to just 0.2% during October. A major Consumer Sentiment Index increased from its prior reading of 91.3 to 91.8 this time around. The US Producer Price Index also performed well by rebounding from -0.4% during October to register growth of 0.3% last month. In contrast, Consumer Spending slowed slightly during November.
So, the stage is now finally set for what could be the most historic event in many years. After lengthy debates and intense analysis, 90% of prominent economists are now predicting that the US Central Bank will introduce a 0.25% rate increase next Wednesday. If confirmed, the new US monetary tightening stance will then be in direct contrast to the easing policies of the rest of the world.
What to Expect This Week
China is scheduled to present major Retail Sales and Industrial Output figures over this coming weekend which will be closely scrutinized by economists, especially following the Yuan slump last Friday. Any signs of additional economic deterioration will exert significant pressure on the Australian and New Dollar Dollars.
On Monday, Japan will publish a key Business Sentiment Index which is expected to extend its decline for the second successive month by reflecting Chinese economic woes and a deteriorating domestic market. Later the Eurozone will post its Industrial Production result for November. Investors are hoping that this indicator will rebound from its previous slump of -0.3%.
Germany will then issue its own major Business Confidence Survey on Tuesday which is predicted to retract from recent highs. The USA will complete the day by releasing its latest Consumer Price Index which should strengthened for the second consecutive month.
On Wednesday, the Eurozone will disclose a number of important Project Manager’s Indices which should confirm expansion in key member states, such as Germany and France. European inflationary data will later be declared which should demonstrate that annualized price growth slipped to just 0.1% last month.
An historic event could then occur during Wednesday afternoon EST when the US Federal Reserve is forecasted to implement its first interest rate hike for almost a decade. If confirmed, then this action will be significant as it will bring to an end seven years of extensive monetary easing. More attractive US assets could then start exerting significant pressure of those of the emerging markets which have already plummeted during 2015.
The United Kingdom will deliver its Retail Sales figure for last month which should counter October’s disappointing result of -0.6%. The USA will next proclaim its Jobless Claims number for the previous week which should ratify that the US labor market continues to strengthen.
France will launch Friday by revealing a prominent Business Sentiment index for the first time since the recent Paris terrorist outrage. This parameter has the potential to prompt the European Central Bank into considering additional stimulus policies depending on its outcome.
Throughout next week, a number of global central banks will also announce their latest rate decisions and monetary policy decisions including Japan, Sweden, Hungary, Chile, Norway, Egypt and Mexico.