Major Events of Last Week

The major catalysts driving the financial markets last week were, unquestionably, the publication of the all-prevailing US Non-Farm Payrolls (NFP) for November and the announcement of its latest monetary policies by the European Central Bank (ECB). The US Department of Labor released its eagerly awaited report disclosing that the US labor market continues to strengthen paving the way for the US Federal Reserve to hike interest rates during December for the first time in practically a decade. In contrast, the ECB definitely confused investors by introducing a more dovish stimulus package than expected. The major US indices surged higher last Friday exemplified by the Dow Jones Industrial Average soaring nearly 355 points; the S&P500 rising by 40 points and the NASDAQ climbing by almost 102 points.

The USA presented its vitally important monthly labor report late last week which surpassed economists’ expectations. US employers created 211,000 new positions during November compared to the predicted 200,000. In addition, the figures for both September and October were revised higher by a total of 35,000 extra jobs. The US unemployment rate also succeeded in remaining steady at a 7.5 year low of 5% despite notable growth in the national workforce.

Prominent analysts summarized the significance of this impressive report by advising that it certainly complies with the final Fed stipulations required to support an interest rate hike later this month.  They added that they could not locate any negative statistics within the document capable of preventing the US Central Bank activating its monetary tightening plans. In fact, the NFP emphatically endorsed the hawkish statements issued by Janet Yellen, the Fed Chairperson, in two key speeches delivered last week.

The ECB was also active by introducing its latest monetary easing policies last Thursday primarily devised to boost the struggling European economy and neutralize the persistent threat of deflation. However, instead of inspiring investors, this event created the opposite impact by increasing uncertainty and chaos. Essentially, key ECB representatives had generated high levels of expectation by emphasizing the need for aggressive stimulus in earlier speeches.

Consequently, traders were taken aback when the ECB only implemented a limited package which certainly did not match its rhetoric. Specifically, deposit rates were trimmed by a smaller-than-expected margin and the current bond buying program was just extended but not enhanced. Disillusioned investors subsequently sent the European stock markets into a nosedive after being totally surprised by the ECB’s lack of conviction and transparency.

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What to Expect This Week

No key economic indicators are scheduled for release on Monday.

Australia will launch Tuesday by presenting a prominent Business Confidence Index. This parameter could retract this time around amid declining commodity prices and Chinese economic woes.  China will then disclose its latest Trade Balance which is expected to extend three months of consecutive gains. If not, then the Australian and New Zealand Dollars could both come under stiff pressure.

On Wednesday, China will reveal important inflationary data for November which is anticipated to confirm the following trends. Consumer Prices have been steadily growing between 1% and 2% on a yearly basis which Producer Prices have declined at a 6% annualized rate. Later, the Reserve Bank of New Zealand (RBNZ) will announce its latest interest rate and monetary policy decisions. Expert consensus is currently favoring a rate cut which could generate extensive weakness in the NZ Dollar, if confirmed.

Australia will commence Thursday by issuing its Labor Report for November. Investors will be keen to discover if October’s impressive growth can be repeated or if it was just a temporary blip. The Bank of England (BoE) will then declare its latest monetary policy decisions. Although economists are predicting that this occasion will be a ‘non-event’; the accompanied statement will be studied earnestly in order to glean insights into when the BoE will most likely hike interest rates during 2016.

The USA will terminate the week by publishing its Retail Sales and Producer Price Index (PPI) for November. The former indicator is especially important since it will include vitally important consumer activity for both Black Friday and Cyber Monday. Strong figures will almost certainly underpin a Fed rate hike this month and provide the US Dollar will a firm boost. In contrast, the PPI is expected to register another monthly decline.

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