Major Events of Last Week

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The global financial markets came under stress towards the end of last week amid declining oil prices and disturbing global growth issues. Investors became increasingly perplexed by geopolitical developments, such as a possible British exit from the European Union and the validity of the US Federal Reserve hiking interest rates within the imminent future. Consequently, traders opted to adopt a more cautious stance prompting them to flock to safe-haven assets, such as gold and the Japanese Yen. In contrast, the yields on government bonds slumped across the globe. The foremost US indices plunged last Friday typified by the Dow Jones Industrial Average crashing 137 points; the S&P500 dropping by 22 points and the NASDAQ falling by 69 points.

Oil prices retracted sharply last Friday after recording their highest 2016 values to date. For example, the US West Texas Intermediate (WTI) futures broke above its critical $50 per barrel mark earlier in the week for the first time this year. A strengthening US Dollar was later identified as the primary catalyst fueling the subsequent bearish retreat. Geopolitical anxiety incited nervous investors to seek the greenback’s sanctuary causing it to appreciate in value against a basketful of other major currencies.

Prominent analysts summarized this development by advising that the oil slump could have been even more dramatic if global supplies had not been substantially disrupted. For instance, Canadian production was severely reduced by wildfires; Nigerian output was curtailed by mounting military interference while US shale yield has waned during recent weeks. Despite these issues, oil prices have now rallied significantly since the start of 2016 by practically doubling in price after registering their lowest value in nearly a decade.

A major event, that will now start dominating the financial markets over the next couple of weeks, will be a British referendum that will determine whether or not the United Kingdom will remain a member of the European Union. The uncertainty of this event is now, unquestionably, taking its toll on investor sentiment epitomized by the German 10-year Government Bond creeping ever nearer towards its key ‘zero yield’ mark as last week progressed.

This situation was made increasingly worse by growing apprehension concerning US rate hike prospects especially following the recent publication of a dismal US labor report for May. The resultant surge in global risk aversion incited traders to buy the ultra-safe, gold, prompting it to hit its highest level in almost 3 weeks last Friday. The correlated Swiss Franc also rose by over 1.6% to record its largest five-day gain since the spring of 2015.

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What to Expect This Week

No major global events or data releases are scheduled for Monday.

On Tuesday, Italy will present its Consumer Price Index (CPI) for May which should add to recent gains by surpassing its prior return of 0.3%. The United Kingdom will then disclose a spate of key inflationary data. Expert consensus favors CPI to beat 0.1 while Producer Price Index (PPI) should hover about its +0.4% mark. Later, the USA will reveal its ‘Retail Sales’ for last month which should provide vital insights into consumer health. Economists are hoping for an inspiring result above 1.5%.

Great Britain will launch Wednesday by delivering its Labor Report for May. A rebound from April’s dismal loss of 1,000 jobs is required in order to confirm that the British economy is now acquiring fresh traction. The USA will later reveal its Industrial Production result for last month. If this indicator can improve on its previous print of 0.7%, then the US Dollar could receive a much needed boost. The pivotal event of the week will then occur during the afternoon, EST, when the US Federal Reserve announces its latest interest rate decision and monetary policies. Investors will be keen to learn if the Fed still intends to stick with its current forward guidance strategy of implementing two rate hikes during 2016.

New Zealand will next issue its Gross Domestic Product (GDP) for the first quarter of 2016. Growth of 0.9% is the current preferred prediction. Australia will complete the session by posting its Labor Report for last month which should verify that just over 10,000 new jobs were created during this period.

On Thursday, Great Britain will publish its latest ‘Retail Sales’ figure for May which should reside about 1.3%. The Eurozone will subsequently release its ‘Industrial Production’ for last month which is forecasted to rebound from the dismal -0.8% recorded in April. The Bank of England (BoE) will then declare its latest interest rate decision and quantitative easing policies. Although a ‘No Change’ verdict is expected, the BoE could still supply important advice about how it intends to cope with a possible Brexit. Later, the USA will pronounce its CPI for last month and Jobless Claims for last week. The former is anticipated to exceed 0.4% while the later should confirm that about 260k new claims were filed for unemployment benefits during the week ending 12th June.

Canada will proclaim its CPI for May on Friday. The Canadian Dollar will be bolstered by any result beating +0.3%. Finally, the USA will terminate the week by presenting a major housing statistic. If ‘Housing Starts’ can extend its recent bullish trend then such a performance will provide fresh proof that the US economic recovery is still advancing forward.

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