Major Events of Last Week
Concerns about the true health of the global economic recovery increased last week after both China and Europe published disappointing data, which missed analysts’ expectations. Investor mood was soured even further when the US Department of Commence advised that ‘new home’ sales declined last month to register their lowest value in practically seven months. Although US factory output recovered from a three month slowdown during July; growth was, nevertheless, only minor in nature. Consequently, the key US indices slumped last Friday typified by the Dow Jones Industrial Average plunging by nearly 164 points; the S&P500 dropping by just over 22 points and the NASDAQ falling by almost 58 points.
Traders opted to suppress their risk aspirations towards the end of last week amid escalating worries about the well-being of both the Chinese and European economies. Specifically, a premier survey revealed that Chinese manufacturing output deteriorated so severely during July that it contracted at its fastest pace in nearly 15 months. This news immediately drove commodity prices downwards as fears soared over the adverse impacts of mounting global stockpiles.
The Eurozone enhanced the gloom even further last Friday by informing the markets that its business activity during the first half of 2015 was less robust that previously advised. For instance, the initial Purchasing Manufacturers Index (PMI) for the region dropped from last month’s high of 54.2 to 53.7 during July missing market expectations of 54.0. Prominent economists summarized these negative developments by advising that a spate of recent disappointing indicators now implies that global growth should be muted during the last two quarters of 2015.
The USA also failed to inspire late last week by declaring that ‘new home’ sales had unexpectedly crashed by almost 7% last month to post their lowest level since the autumn of 2014. This result was particularly disappointing when compared to the prior favored prediction of minor growth for June. Matters were made even worse after the US Department of Commence also revised May’s ‘new home’ sales sharply lower.
Despite these dismal figures, economist still remained upbeat about the overall health of the US housing sector by concluding that it was still robust. They structured this assessment primarily on the grounds of sturdy demand, particularly from young adults, supported by a strengthening US labor market. In addition, they stressed that improving lending facilities for first-time buyers were also stimulating long-term growth. However, they did express concerns about the sheer size of the ‘new home’ stock, which expanded at its quickest pace since May 2010 during June.
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What to Expect This Week
Germany will commence proceedings by presenting a major Business Climate Index for July on Monday. Expert consensus currently forecasts a minor rebound from 107.4 to 107.5 countering two consecutive months of losses. A weaker performance could exert fresh pressure on the euro. Later, the USA will disclose its Durable Goods Orders for June. Growth of 3.0% is expected compared to May’s surprised decline of 2.2%.
On Tuesday, the United Kingdom will reveal the first sighting of its Gross Domestic Product for the second quarter of 2015. Analysts are presently predicting that the UK economy expanded by a notable 0.7% on a quarterly basis during this period despite the annual rate contracting from 2.9% to 2.6%.
Wednesday should provide the pivotal event of the week when the Federal Open Market Committee (FOMC) announces its latest interest rate decision and monetary easing policies during the afternoon, EST. Although a rate change is not anticipated, investors will still be eager to discover if the Fed will provide any new clues to the exact timing of its first interest rate hike. This meeting has taken on extra significance this time around following a recent spate of supportive and encouraging events.
Germany will launch Thursday by posting its Consumer Price Index (CPI). This prominent inflationary data should verify a rebound from last months’ decline of 0.1% by recording growth of 0.2%. Such an outcome could help the euro strengthen across the board. The USA will then release the first reading of its Gross Domestic Product for the second quarter of 2015. This key parameter needs to confirm a significant rebound in growth following the worrisome contraction registered during the first quarter. Japan will complete the session by publishing its CPI for June. Inflation should remain well below the 2% target set by the Bank of Japan since it is expected to have completely stalled last month.
On Friday, the Eurozone will release its own CPI reading for July, which should remain steady at 0.2% on an annual basis. If such an outcome is validated, then it will provide additional proof that the threat of deflation is now fully under control. Canada will terminate the week by proclaiming its Gross Domestic Product for May. An economic recovery is the preferred prediction following four successive months of contraction. A weaker-than-expected outcome could encourage the Bank of Canada to instigate another interest cut within the near future.
