Week in Review

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Investors opted to adopt a cautious stance on the first full trading day of 2015 resulting in global equities recording minor growth. Without the emergence of any distinctive bullish catalysts, their decisions were essentially swayed by further weakness in oil prices and the release of indifferent economic data from the USA. The euro came under significant pressure today forcing it to decline across the board after Mario Draghi, the President of the European Central Bank, advised that action will be instigated soon to combat the persistent threats of deflation and the region’s faltering economic recovery. The foremost US indices crept higher last Friday typified by the Dow Jones Industrial Average climbing by just over 20 points; the S&P500 inching higher by almost 2 points and the NASDAQ drifting upwards by 17 points.

The USA posted a spate of economic indicators on Friday which demonstrated that prevailing conditions may not be as robust as recent data indicated. Specifically, analysts were surprised to learn that construction spending had slumped 0.3% lower during November. In addition, the US Institute of Supply published a report disclosing that the nation’s factory output fell to a six month low during December. Consequently, investors took the opportunity to fine-tune their risk exposures after questioning whether the current high levels of equities are truly justifiable. For example, some economists are presently advising that they would feel far more comfortable if the stock markets were about 20% lower.

A major influence influencing trader sentiment on Friday was a further decline in oil prices which plunged to register lows last seen about five years ago. This commodity is currently under significant pressure amid escalating concerns about a serious global supply glut causing it to register its thirteen week of consecutive losses. The energy sector suffered in unison resulting in a number of major operators registering notable declines last Friday. For example, the shares of Marathon Oil slide by 0.6% while those of Newfield Exploration crashed by 2.3%.

The euro commenced the New Year on the wrong footing by weakening against most other major currencies.  For instance, the EUR/USD probed its psychologically important 1.200 level for the first time in slightly over 4 years. The contrasting monetary easing policies of the US Federal Reserve and the European Central Bank are presently exerting pressure on the single currency. Specifically, the former is aiming to tighten its stimulus measures while the latter intends to expand its options. Mario Draghi, the ECB President, emphasized this difference last Friday by advising that steps would be implemented in the imminent future to counter the potential worrisome impacts of deflation within the Eurozone.

What to Expect This Week

A bout of important global economic indicators will be issued during the course of the coming week.

Germany will commence the action by issuing its Consumer Price Index for last month. If another decline in inflation is recorded that such a result will bolster the case for more stimulus action by the European Central Bank (ECB). On Tuesday, the USA will present its Non-Manufacturing PMI for December which could provide valuable insights into the forthcoming release of the vitally important US labor report this coming Friday.

The Eurozone will launch Wednesday by disclosing the first sighting of its Consumer Price Index for last month. The ECB could be prompted into motion if inflation falls once again. Later in the session, the US Federal Reserve will reveal the minutes from its last policy meeting. Analysts will be keen to discover whether this key document contains a hawkish undertone which would be bullish for the US Dollar.

The Eurozone will declare its Retail Sales for November on Thursday. A surprise outcome to the upside will bolster the stressed euro.  Next, the Bank of England will announce its latest interest rate decision. A ‘No Change’ verdict is presently the favored prediction. Japan will complete the session by publishing its Machinery Orders for November which are expected to rebound from a previous poor showing.

Friday will be a busy day. First, Australia will print its Retail Sales for November, which is predicted to extend its recent trend of growth. China will then post its Consumer Price Index for last month. Following a spate of worrisome recent data releases, this parameter is expected to miss market expectations as well. The United Kingdom will then issue its Industrial and Manufacturing Production figures for November. A rebound from last month’s weak results will provide a solid boost to Sterling.

The pivotal event of this week will then occur when the USA presents its Non-Farm Payroll, Average Hourly Earnings and Unemployment Rate. After last month’s stellar performance, economists are predicting that about 200,000 new posts were created by US employers during December. Finally, Canada will terminate the week by issuing its own labor report for December. After disappointing figures were released last month, a rebound is now on the cards.

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