Major Events of Last Week
The global financial markets were subjected to extensive stress last week amid escalating concerns about a Chinese economic slowdown, persistently declining oil prices and worries about the true health of major European banks. The resultant anxiety prompted investors to flock to the sanctuary of safe-haven assets, such as gold and the Yen. This mounting crisis is beginning to exert substantial pressure on the US Federal Reserve, which may now have to place its new monetary tightening policies on hold if further deterioration materializes. The USA did, however, provide a glimmer of hope late last week when it posted a better-than-expected key economic indicator. The leading US indices strengthened last Friday epitomized by the Dow Jones Industrial Average soaring nearly 310 points; the S&P500 rising by slightly over 33 points and the NASDAQ climbing by almost 67 points.
World equities endured another stressful week by registering four consecutive days of significant losses before instigating a minor corrective rally on Friday. Prominent economists summarized this worrisome situation by advising that investors were now definitely pricing-in a serious global economic slowdown and even a potential new recession in the USA. Although they do not anticipate a major financial collapse, as experienced in 2007/08, they still expect that trader sentiment could take a substantial hammering.
Signs of such a development were already beginning to emerge demonstrated by a mad dash into safe-haven assets, such as gold and the Yen. The price of this precious metal rocketed to just over $1,200 per ounce last week recording a one year high in the process. The Yen rose at such a dramatic rate against a basketful of other major currencies that the Japanese Finance Minister, Taro Aso, was forced to urgently intervene by advising that appropriates measures will be instigated if this state-of-affairs continues.
One of the pivotal events of last week was the two-day testimonial before the US Congress of Janet Yellen, the Chairperson of the US Federal Reserve. This event unquestionably increased doubts about the ability of the Fed to maintain its new monetary tightening stance in the face of growing geopolitical turmoil. For example, Yellen advised that the US Central Bank was already investigating the viability of more unconventional procedures, such as negative interest rates, if the current financial crisis takes a turn for the worse.
The USA did provide some inspiration last Friday when it published its Retail Sales for January, which surpassed market expectations. Specifically, US consumer spending grew at 0.6% last month compared to the predicted 0.3%.
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What to Expect This Week
Japan will commence proceedings by presenting the first sighting of its Gross Domestic Product (GDP) for the fourth quarter of 2015 on Sunday. Expert consensus is predicting that economic growth contracted during this period by declining 2% on a quarterly basis.
Mario Draghi, the President of the European Central Bank (ECB), is scheduled to deliver an important speech on Monday. Investors will be keen to discover if he adopts a dovish tone by indicating that additional monetary easing will be introduced by the ECB at the end of its March meeting. Later the Reserve Bank of Australia (ECB) will release the minutes from its latest policy meeting. Analysts will study this document carefully in order to glean any insights into whether the RBA is seriously contemplating cutting interest rates in the short-term.
On Tuesday, the United Kingdom will disclose its Consumer Price Index (CPI) for January. British inflation is expected to increase to 0.3% on a monthly basis after remaining flat for almost one year. The Eurozone will then terminate the session by posting a key Economic Sentiment Index, which is forecasted to slump to its lowest value since 2013.
Great Britain will launch Wednesday by revealing its eagerly awaited labor report for January, which should confirm a slight drop in the unemployment rate. The average hourly earnings index should also verify a minor increase in wage growth. The pivotal event of the week will occur during Wednesday afternoon, EST, when the Fed issues the minutes from the last meeting of the Federal Open Market Committee (FOMC). This vital report should enhance growing speculation that the probabilities of a March interest hike have been dramatically reduced amid escalating global economic worries. Australia will complete the day by publishing its labor statistics for last month. Traders are predicting that about 13,000 new jobs were created during January.
No primary economic data will be released on Thursday.
On Friday, the United Kingdom will post its Retail Sales for January. This parameter is notorious for generating a random pattern over recent months by dramatically oscillating between contraction and growth. This time around, an increase of 0.9% on a monthly basis is the favored estimate. The USA will then close the week by proclaiming its CPI for last month. If inflation does rise by 0.2%, as widely forecasted, then such a result will boost chances of a Fed interest rate hike in March.
