Major Events of Last Week
Global investors were taken aback last Friday when the USA published its Gross Domestic Product (GDP) for the second quarter of 2016 which badly missed analysts’ predictions. The largest slump in inventory investment recorded in practically 5 years ensured that the GDP increased at just 1.2% on an annualized basis compared to the widely forecasted 2.6%. However, the report was not all doom and gloom as it did reveal some underlying strength created by a boost in consumer spending which accelerated by an impressive 2.7% during Q2. The leading US indices produced mixed reactions last Friday typified by the Dow Jones Industrial Average dropping by 16 points; the S&P500 rising 3 points and the NASDAQ climbing by 7 points.
The US Department of Commence advised late last week that GDP had risen at a more insipid pace during the second quarter than expected after growing during Q1 by a downwardly revised 0.8%. However, prominent economists were quick to explain that this performance was not as depressing as it first appeared since it was primarily driven by a significant decline in inventory investment. Consequently, more respectable growth of 2.4% on an annualized basis would have been achieved if this factor was removed. Specifically, business inventories plunged by $8.1 billion during Q2 from the increase of $40.7 billion attained in Q1.
Nevertheless, the weaker-than-expected GDP could still influence the US Federal Reserve by inciting it to adopt greater caution even after it advised last Wednesday that short-term risks to the US economic were presently receding. As a direct consequence, the US Dollar retracted sharply against a basketful of other major currencies amid growing conjecture that the FED may now not hike its benchmark interest rates until next year.
The GDP report did supply some encouraging features by disclosing that consumer spending (CS) had climbed by 4.2% during Q2 by registering its fastest rate of growth since the last quarter of 2014. This achievement is very important as CS is responsible for generating nearly two-thirds of all the activity driving the US economy. Although most traders do not consider that such a performance can be sustained over forthcoming quarters, they still concluded that consumer sentiment will continue to be supported for the foreseeable future by a healthy US housing sector, a strengthening US labor environment and improving savings. Specifically, disposable US income after inflation adjustments climbed from $13.81 billion during the first quarter of 2016 to $13.92 billion this time around.
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What to Expect This Week
The Eurozone will launch proceedings by presenting a spate of Purchasing Managers’ Manufacturing Indices (PMI) on Monday. The French PMI is predicted to rebound back above its critical 50.0 mark while the German PMI should beat its previous print of 54.5. Later, the US Institute of Supply Management will divulge its revered Manufacturing Index which should extend its recent bullish trend.
On Tuesday, the Reserve Bank of Australia (RBA) will announce its latest interest rate decision and monetary policies. This event could be dramatic as the RBA is on the verge of cutting rates amid a struggling Australian economy. The United Kingdom will then disclose the PMI for its vital construction section for last month which could provide further insights into how Brexit is influencing the British economy. The USA will next reveal its ‘Personal Income and Outlays’ for July which is expected to hover about its 0.2% level. This parameter is quite important as the US Federal Reserve uses it as one of its primary considerations when assessing inflation. The Bank of Japan (BoJ) will complete the session by delivering the minutes from its latest Monetary Policy meeting which should provide a valuable overview about how it currently evaluates the precarious nature of the Japanese economy.
The Eurozone will commence Wednesday by releasing another bout of major inflationary data. The French PMI Composite should still reside in recessionary territory by posting a value less than 50.0; the German PMI Composite should surpass 55.0 while the PMI Composite for the entire Currency Bloc should tread-water about its 53.0 mark. The United Kingdom will then post the PMI for its service sector which is expected to plunge deeper into the red amid deteriorating Brexit developments. Australia will complete the day by posting its ‘Retail Sales’ for July. Expert consensus is presently favoring a slump below its prior read of 0.2% as a sizeable decline in customer confidence begins to bite.
An important event will occur on Thursday when the Bank of England (BoE) declares its latest interest rate decision and monetary policies. Analysts will be keen to learn what strategy the BoE plans to adopt in order to counter Brexit concerns and uncertainties. The USA will then publish its ‘Jobless Claims’ for the week ending 31st July which should verify that the number of Americans filing first claims for unemployment benefits continues to reside within the long-standing range of 240k to 290k.
On Friday, the USA will publish its all-prevailing labor report for July. Will US Employers again be able to match the stellar performance generated during June when they created almost 290,000 new jobs? The USA will finish the week by declaring its ‘International Trade’ for last month which should beat its previous reading of -$41.1 billion.