Major Events of Last Week
An historic event occurred last week when the US Federal Reserve hiked its interest rates for the first time in almost a decade. After a brief period of euphoria, investors subsequently adopted a more cautious stance as they attempted to assess the downside risks of a stronger US Dollar and constantly declining commodity prices on an already fragile global economic recovery. For example, crude oil extended its losses for the third consecutive week by registering its longest ever four-monthly slump. The foremost US indices responded to these dramatic developments by plummeting last Friday demonstrated by the Dow Jones Industrial Average nose-diving by almost 316 points; the S&P500 edging lower by nearly 28 points and the NASDAQ falling by almost 66 points.
After many years of quantitative easing and easy money, the Fed finally fulfilled its promises by hiking its benchmark interest rate by 0.25% last Wednesday ushering in a new monetary tightening phase. Initially, this major event was well received by investors who subsequently pushed the financial markets higher. However, they then became more cautious towards the end of last week as they began to evaluate the reality of persistently weakening commodity prices and a stronger US Dollar. Prominent economists summarized this dilemma by advising that the first half of 2016 could now be subjected to extensive bearish catalysts especially if oil prices continue to spiral downwards.
Now that the US Central Bank has instigated its first hike, traders should subsequently turn their attention to determining when and how quickly the Fed will increase interest rates even further. This is because this vitally important task could be endangered by substantial bearish risks. For instance, a stronger US Dollar could limit the growth of US manufacturers while commodity prices and inflation could deteriorate even further. In addition, the global economic recovery still remains in a precarious state since it is particularly vulnerable to any negative Chinese developments.
Nevertheless, many economists are still predicting that the Fed will hike again by March, 2016. Janet Yellen, the Fed Chairperson, empathetically advised last week that rates will be increased gradually and cautiously. Consequently, evaluating and defining the term ‘gradual’ will now be a top priority for all leading financial advisors and institutions. The Fed, itself, is presently forecasting that its benchmark interest rate will reside between 1.25% and 1.50% by the end of 2016. In contrast, many independent economists predict a more subdued range of 1%-1.25% primarily as a consequence of a strengthening US Dollar and plummeting oil prices.
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What to Expect This Week
No major events or data releases are scheduled for Monday.
The USA will launch Tuesday by presenting the final revision of its Gross Domestic Product (GDP) for the third quarter of 2015. Economists will be hoping for an improvement on the previous reading of +2.1%. Later, the USA will post a key statistic from its important housing sector. Existing Home Sales is expected to underpin a recent spate of impressive housing results by surpassing its prior print of 5.36M.
On Wednesday, the United Kingdom will disclose its own GDP for Q3. If this major indicator fails to match its previous revision of 0.5%, then expect Sterling to come under fresh pressure. Canada will next reveal its GDP and Retail Sales for November. Investors are hoping that both parameters can reverse the 0.5% declines they both posted in October. At the same time, the USA will publish its ‘Personal Incomes and Outlays’ and ‘Durable Goods Orders’. The former is forecasted to extend its October growth figure of 3% while the latter should beat its prior reading of +0.3%.
Later, the USA will release its New Home Sales which is expected to better its preceding result of 495k. The Bank of Japan (BoJ) which terminate the session by issuing the minutes from its last monetary policy meeting. Investors will study this document carefully in order to glean any insights into why the BoJ unexpectedly introduced new monetary policies last week.
The USA will release its Jobless Claims for the week ending 20th December 2015 on Thursday. This figure should confirm that the US labor market continues to garner momentum by verifying that the number of Americans claiming first time benefits contracted even further. Japan will complete the week by announcing its Consumer Price Index for November. Expert consensus is favoring a rebound from a prior reading of -0.1%.
The global financial markets are, of course, closed on Friday for the Christmas holiday.
