Major Events of Last Week
The global stock markets recorded their worst yearly start ever by plummeting hundreds of points last week. The primary catalysts behind this bearish crash were escalating concerns about the worrisome state of the Chinese economy. In order to prevent this crisis running totally out-of-control, Beijing was forced to act promptly last Thursday by dumping its new circuit breaker system. In addition, the People’s Bank of China rushed to restrict the rot by lifting the Yuan/USD exchange rate for the first time in almost 2 weeks. The USA did supply some joy by publishing a stellar labor report for December which easily surpassed analysts’ expectations. The leading US indices sank last Friday typified by the Dow Jones Industrial Average plummeting slightly over 101 points; the S&P500 inching lower by almost 15 points and the NASDAQ falling by nearly 22 points.
Investors endured a horrid time last week triggered by sizeable Chinese economic woes such as a weak Yuan/USD exchange rate; the release of disappointing service and factory data; a looming sales ban expiry date and two suspended days of trading. However, Beijing eventually identified its new stock market circuit breaker system as the main culprit for this chaos since it had reacted far too quickly to adverse conditions resulting in substantial investor panic.
After its stock markets had been abruptly halted twice last week, China then responded quickly to subdue this situation. For example, the fore-mentioned circuit breakers were completely ditched late Thursday while the PBoC introduced a more attractive Yuan/USD exchange rate. These measures succeeded in stabilizing global equities enabling them to regain some of their composure during last Friday’s session. However, prominent economists are still very worried by the need of the PBoC to devalue its national currency by almost 2% since the middle of 2015. This is because such an aggressive action implies that the Chinese economy may be in a more vulnerable state than currently envisaged.
After enduring all this turmoil, investors must now prepare themselves for another wave of key Chinese economic releases over the coming weeks. If any of this data misses analysts’ expectations, then such outcomes could again inject extensive volatility into the world’s financial markets. Specifically, import and exports parameters for December will be issued next Wednesday followed by the Gross Domestic Product for the fourth quarter of 2015 during the ensuing week.
The USA did succeed in providing some cheer late Friday by posting an impressive labor report for last month. US employers created 292,000 new jobs which easily surpassed predictions of 200,000 and laid the foundations for another interest hike by the US Federal Reserve during the first quarter of 2016.
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What to Expect This Week
No major data releases or event are scheduled to occur on Monday.
The United Kingdom will kick-off Tuesday by presenting its ‘Manufacturing Production’ parameter for December. Expert consensus is presently forecasting another print within the long-term monthly range of -1% and 1%. A stronger reading could provide the Bank of England with more incentive to hike interest rates sometime during 2016.
On Wednesday, investors will anxiously await the disclosure of the Chinese Trade Balance for last month especially considering the drama and volatility experienced by the financial markets last week. This important indicator could provide vitally important insights into the true health of the world’s second largest economy. Later, Australia will reveal its labor report for December. Economists are expecting a sharp decline in the number of jobs created following two months of exceptional but dubious growth.
The Bank of England will convene on Thursday for its monthly monetary policy meeting. Although ‘no change’ is the favored outcome, traders will, nevertheless, carefully scrutinize any forthcoming statements or comments in order to assess the likelihood of an interest rate hike during 2016.
On Friday, the USA will post a raft of prominent economic indicators. Retail Sales will demonstrate how active US consumers were over the all-important holiday season. Many analysts are anticipating monthly growth of 0.4% for this crucial period. Next, the Producer Price Index (PPI) could supply clues on whether inflation is still advancing towards the Fed’s designated target of 2%. Finally, the USA will declare a key Consumer Sentiment Index which could illustrate if the US consumer is still capable of underpinning the US economic growth amid persistently declining oil prices and current market turbulence.
