Major Events of Last Week
After a bruising start to the year, the global stock markets staged a recovery late last week by countering the adverse impacts of crashing oil prices and escalating Chinese economic woes. The central catalyst behind this bullish rebound was a dovish speech delivered by Mario Draghi, the President of the European Central Bank (ECB), during which he strongly hinted that additional quantitative easing could well be introduced in March. Freezing weather in both the USA and Europe provided additional support by helping oil prices rally towards the weekend. The leading US indices surged upwards last Friday epitomized by the Dow Jones Industrial Average soaring just over 210 points; the S&P500 rising by almost 38 points and the NASDAQ climbing by nearly 113 points.
Mario Draghi succeeded almost single-handedly last Thursday in taming the global equity crisis by advising that the ECB was presently contemplating the instigation of new stimulus policies in March with the direct intent of countering a persistent threat of deflation and boosting a struggling European economic recovery. Besieged investors seized on Draghi’s dovish speech prompting them to drive the stock markets higher by over 5% during the latter part of last week.
Leading economists summarized this development by advising that they will not be surprised if more global central banks will now take action in order to combat a low inflationary environment; rising risk exposure and further collapses in equity and commodity prices. The seriousness of this situation cannot be underestimated since numerous major assets have already entered bearish territory by plunging practically 20% from recent highs.
Oil finally garnered some relief during the latter part of the week after it successfully rebounded from a 12 year trough by climbing 6.4% to recapture its $31.00 per barrel handle. Crude acquired support after data confirmed a significant increase in US stockpiles and its demand was bolstered by deteriorating weather in both Europe and North America. Other beleaguered commodities also rallied last Friday typified by copper prices recovering by just over 1.1%.
The currency markets were particularly active last week. For example, the euro weakened across the board, following Draghi’s dovish speech, illustrated by it falling over 0.4% against the US Dollar. As such, some specialists subsequently revised their euro forecasts lower by forecasting that the single currency will tumble below parity against the greenback before the end of 2016. They based this prediction on the fact that the financial markets will now need to face an extensive period of quantitative easing before any meaningful global growth can be definitely recorded and validated.
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What to Expect This Week
Germany will launch proceedings by presenting a major Business Sentiment Survey for December on Monday. Economists are anticipating that this parameter will reverse the decline recorded during November.
On Tuesday, the USA will disclose a key Consumer Confidence index for this month. Investors will be keen to learn how well this indicator has coped with the recent slumps in oil and stock prices. Australia will terminate the session by revealing important inflationary data for the last quarter of 2015. The Consumer Price Index (CPI) is forecasted to extend 15 quarters of successive gains despite current market turbulence.
One of the pivotal events will occur on Wednesday when the Federal Open Market Committee (FOMC) releases its interest rate decision and latest monetary policy statement. The former will almost certainly remain unchanged. However, traders will analysis the latter document intently in order to determine if the Fed has started to adopt a more dovish stance following the dramatic events of 2016 to date. Later the Reserve Bank of New Zealand (RBNZ) will announce its own Interest Rate Decision and latest monetary policies. The RBNZ should keep its powder dry this time around in order to acquire sufficient time to thoroughly assess the impacts of the present Chinese economic crisis.
On Thursday, the United Kingdom will provide the first sighting of its Gross Domestic Product (GDP) for the fourth quarter of 2015. Analysts are hoping that a strong outcome will reverse the negative trend generated by the recent release of weaker-than-expected British economic data. The USA will then declare its Durable Goods Orders number which is predicted to have contracted during December by 0.7% on a monthly basis. The Bank of Japan (BoJ) will complete the day by issuing its latest Monetary and Forward Guidance policies. Although the Japanese economy is presently experiencing sizeable difficulties, the BoJ should still refrain from activating any aggressive new steps on Thursday.
The USA will finish the week by proclaiming its highly-awaited GDP for the last quarter of 2015. As this vital indicator will be scrutinized carefully by all trading participants, it definitely possesses the ability to be a market-mover. If this number misses economists’ expectations, then such a result could persuade the US Federal Reserve to delay its next interest rate hike until later in the year.