Major Events of Last Week
Prospects of an interest rate hike by the US Federal Reserve during 2015 received a substantial boost last Friday when the USA released a stellar labor report surpassing analysts’ expectations. Elsewhere, the status of the Greek debt crisis degenerated even further late last week after Athens both delayed a scheduled repayment of a loan to the International Monetary Fund and advised it may even call a snap election. The Organization of the Petroleum Exporting Countries (OPEC) also surprised investors by announcing it would continue supporting unrestricted petroleum production for another six months despite declining oil prices. The key US indices produced a mixed reaction to these events last Friday epitomized by the Dow Jones Industrial Average plunging by slightly over 55 points; the S&P500 inching lower by almost 3 points but the NASDAQ climbing by nearly 10 points.
The US Department of Labor published its highly awaited jobs report for May last Friday disclosing that American employers created 280,000 new posts. This impressive performance not only recorded the largest monthly increase since last December but also beat economists’ forecasts of 225k. Although the unemployment rate rose from a seven year low of 5.4% to 5.5%, officials advised that this increase was due to more people entering the work force.
After carefully studying the details of the report, prominent analysts concluded that such strong numbers should definitely encourage the Fed to seriously reconsider hiking interest rates during 2015. They based this assessment on the fact that the better-than-expected Non-Farm Payrolls undeniably countered a recent spate of weak US economic indicators, such as Industrial Production and Consumer Spending. In contrast, the robust jobs report suggests that the US economic recovery is starting to gain momentum after a dismal first quarter.
The Greek debt drama entered a more worrisome phase last Friday after Athens opted to postpone a scheduled IMF repayment of 300 million euros. Anxious investors subsequently drove Greek bond yields higher and European Stocks lower amid escalating fears that Greece now faces increasing possibilities of bankruptcy and a Eurozone exit. This crisis certainly seems very precarious especially as Greek’s current bailout funds expire at the end of June.
The recent rebound in oil prices, from a six year low of $45 a barrel, prompted OPEC to retain its present policy, of not restricting global petroleum output, for at least a further six months. Last week’s meeting also opted not to address a number of important pending issues, such as the imminent reactivation of extensive oil production facilities by both Libya and Iran.
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What to Expect This Week
The following key economic data will be released this week. Please note that no major news releases or events are scheduled for Monday.
The United Kingdom will present its Trade Balance for April on Tuesday. The British pound could come under new pressure if this parameter extends recent declines. The Eurozone will then disclose its Gross Domestic Product for the first quarter of 2015. Analysts are currently favoring a moderate increase of 0.4% supporting an annual growth of 1%.
Great Britain will also commence Wednesday by revealing its Production Data for April, which is expected to validate a contraction of 0.1% this time around.
On Thursday, the USA will publish its highly important Retail Sales figure for last month. Economists will study this result intensely since US consumers are currently adopting a very cautious profile generating a substantial lag on the US economic recovery. Their preferred prediction is for an increase of +1.1%, which would reverse the recent trend of declines.
The Eurozone will launch Friday by posting its Industrial Production for April. Investors are hoping for growth of 0.4% countering the slump of -0.3% registered in March. They will also be keen to discover if such an improvement would be driven primarily by Germany or if it is more broad-based throughout the member countries of the currency bloc. Later, the USA will release its Producer Prices for last month. Any signs that inflation is rising will both boost the US Dollar and increase prospects of an early interest rate hike by the Fed.
The USA will then complete the week by issuing a key consumer confidence index later on Friday. Analysts are forecasting that this important parameter, generated by the University of Michigan, will reverse recent declines by increasing from its prior reading of 90.7 to 91.2. Such an outcome would provide evidence that consumer morale is beginning to improve following a particularly depressing winter.
