Week in Review
The global stock markets pared the significant gains they captured the day before by crashing dramatically last Friday amid a session dominated by high volatility. Investors hastened to reduce their risk appetite after China released another worrisome economic indicator overnight emphasizing the current plight of the world’s second largest economy. Their confidence also slumped by anxiously attempting to assess the potential adverse impacts that declining oil prices could have on the world’s key energy sector. The USA did brighten the day by posting data that strongly suggests that it can survive any storms created by a crude glut and a global slowdown. The primary US indices plummeted last Friday characterized by the Dow Jones Industrial Average crashing by slightly over 215 points; the S&P500 climbing by almost 20 points and the NASDAQ surging by nearly 32 points.
The constant decline in oil prices continued to be one of the main bearish driving forces last Friday causing global equities to plunge. This commodity has now been in a downward spiral for almost six months pressurized by overproduction issues and a strengthening US Dollar. Economists are presently concerned that those companies operating within the energy sector will soon start to feel the heat by registering lower profits. In addition, they advised that should this situation persist then it could discourage investors from re-investing in energy stocks.
China initiated a dour mood towards the end of last week by posting another weaker-than-expected economic indicator that missed analysts’ expectations. This disappointing result added additional credence to the viewpoint that the economies of a number of key global trading regions, such as Japan, China and the Eurozone, have now already entered new recessions. Speculation supporting this theory has escalated recently after the relevant Central Banks started to boost their rhetoric concerning the instigation of further monetary easing policies. This talk has not only exerted consistent pressure on their national stock markets but has also prompted their national currencies to weaken substantially against the US Dollar.
Against this backdrop of despondence, the USA continued to confirm that its economic recovery was still acquiring increasing traction. A key index disclosed that consumer confidence had surged higher this month to record an 8 year high amid an improving national labor market and falling oil prices. The highly respected survey produced by Thomson Reuters and the University of Michigan printed a value of 93.8 easily exceeded market predictions. In addition, the US Department of Labor issued its Producer Price Index last Friday revealing a fall in inflation of 0.2% during November. This decline was primarily generated by a continuous slump in oil prices.
What to Expect This Week
A spate of key global economic indicators will be published this week, as follows:
Australia will start the week by releasing its Mid-Year Fiscal and Economic Outlook Report. This document is expected to demonstrate that the national budget deficit continued to expand mainly as a result of declining commodity prices.
On Tuesday, China will post its Preliminary Manufacturing PMI for this month. Expert consensus forecasts a worrisome outcome below 50 signaling a state of contraction. The Eurozone will then issue its Preliminary Composite PMI for December which should climb to 51.5 compared to its prior reading of 51.1. Next, Great Britain will publish key inflation data for last month which should extend recent losses by falling from 1.3% to 1.2%. Germany will subsequently present an important investor confidence gauge for this month. After slipping lower during recent months, this parameter should stabilize this time around. Simultaneously, the Eurozone will announce its Trade Balance for October. An improved surplus is the favored result by rising from 17.7Bn Euro to 18.4Bn Euro. The USA will conclude the session by disclosing its housing Starts and Building Permits for November. Strong readings could spark a new US Dollar rally.
The Bank of England will launch Wednesday by revealing the minutes from its latest policy meeting. This document should adopt a dovish tone with focus on hot topics such as falling inflation and wage growth. The UK will also declare Labor Market Data for last month. The unemployment rate should register its lowest value since 2008 by printing 5.9% and wages should have grown to 1.6% from 1.3%. The USA will next announce its Consumer Price Index for November which should slide lower to 0.1%. The pivotal event of this week will then occur when the US Federal Reserve presents its latest monetary easing policies and statements supported by an ensuing press conference. However, no significant changes are forecasted on this occasion.
Germany will release a prominent industrial confidence index on Thursday which should rebound from previous weakness. Great Britain will then issue its Retail Sales for November. Although growth is predicted, the rate of expansion should be slower than that recorded during the previous month.
On Friday, Bank of Japan will publish its latest monetary easing policies. This event will be supported by an ensuing press conference. This central bank should not introduce any new actions by preferring to wait to assess the impacts of new quantitative easing measures implemented at the end of October. Canada will then disclose its Consumer Price Index for November. Investors will be keen to learn if this indicator has been impacted by the recent dramatic decline in oil prices.