Major Events of Last Week
Global equities endured another torrid time last week typified by the NASDAQ dropping by over 3% on Friday to register its lowest level since mid-2015. The main culprits behind this collapse were once again the Chinese economic crisis and persistently declining oil prices. The USA also added to the dour mood by publishing a spate of key indicators which missed markets expectations. Economists are now forecasting that the stock markets could suffer even further extensive losses over the coming weeks amid high market volatility and mounting geopolitical uncertainties. The premier US indices crashed last Friday illustrated by the Dow Jones Industrial Average plunging nearly 415 points; the S&P500 falling by just over 44 points and the NASDAQ dropping by almost 137 points.
Oil prices continued to decline at an alarming rate last week by falling just over 4% to register twelve year lows. However, the worst may still be to come as the markets will soon be flooded with an additional oil supplies from Iran as soon as its present international sanctions are removed. Prominent economists summarized these developments by advising that another significant drop in crude prices is now a distinct possibility particularly if the International Atomic Energy Agency (IAEA) endorses the removal of Iranian restrictions next week, as widely expected. Under such circumstances, they predict an additional sharp drop from the current $30 per barrel to $25 per barrel.
The gloom over China is still in full vogue especially as it is scheduled to publish its Gross Domestic Product on Tuesday. Traders will be very anxious before this release as it should confirm the weakest annual growth in nearly a quarter of a century. Analysts have attributed this worrisome performance to deteriorating external and internal demands, manufacturing saturation, declining investments and a heavily subdued housing sector. They explained that these factors have generated significant deflationary stimuli which are stifling the performance of the world’s second largest economy. Specifically, the GDP of the last quarter of 2015 is expected to slump from 6.9% to 6.8% to record its worse reading since the start of the 2007/08 financial crisis.
Investors were unsettled even further late last week when the USA published weaker-than-expected economic data. Retail Sales slid by 0.1% during December amid cheaper petrol prices and warm winter weather. US manufacturing output fell by 0.4% last month compared to its prior reading of -0.9%, primarily due to cutbacks in the mining and utilities sectors. The Producer Price Index (PPI) also dipped during December from its previous figure of +0.3% to -0.2% to record eleven consecutive months of declines.
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What to Expect This Week
China will commence proceedings by presenting its Gross Domestic Product (GDP) for the fourth quarter of 2015 late Monday. Expert consensus is predicting that the GDP contracted during this period, as outlined above. The Industrial Production figure for December will be announced at about the same time which is also forecasted to register a decline. However, the likelihood now exists that Chinese policymakers could massage these figures in order to make them match or surpassed analysts’ expectations with the intent of suppressing investor panic.
On Tuesday, the United Kingdom will disclose key inflationary data for the last quarter of 2015. The Consumer Price Index (CPI) is anticipated to remain near 0% for the fourth successive quarter. The Eurozone will then reveal a leading Business and Consumer Sentiment Indicator which should extend a sequence of positive returns. If so, then the euro could well receive a new boost. Later, the Global Dairy Trade Index (GDT) will be published which is forecasted to fall for the second successive time in a row. As the New Zealand Dollar is highly correlated to this indicator, such an outcome could cause the Kiwi to weaken across the board.
Great Britain will launch Wednesday by posting its Employment Report for December which should confirm a recent trend of increasing unemployment. Such an outcome will dramatically reduce prospects of an interest rate hike by the Bank of England (BoE) during 2016. The USA will terminate the session by issuing its CPI for last month. Declining oil prices should ensure that this parameter remains practically unchanged.
On Thursday, the European Central Bank (ECB) will deliver its latest monetary policy decisions and conduct a Press Conference shortly afterwards. After the ECB adopted a more dovish stance than expected at its December meeting, many pundits are predicting that it may attempt to make amends by setting the stage for additional quantitative easing later this year.
The United Kingdom will complete the week by releasing its Retail Sales for last month. Although investors are expecting just a minor decline on a monthly basis, they will nevertheless study any revisions carefully in order to glean any new insights into the true health of the British economy.
