Major Events of Last Week
The USD/JPY posted its lowest levels since the autumn of 2014 by crashing below its pivotal 107.00 level. Investors flocked to the Yen after the Bank of Japan surprised the markets last Thursday by keeping its benchmark interest rates and monetary policies unchanged. This decision stunned traders since expert consensus had strongly predicted additional quantitative easing after Japan had suffered a spate of disappointing economic indicators prior to this event. Prominent analysts are now forecasting that a test of the psychologically important 100.00 Yen level is definitively a distinct possibility over the next few months.
The first sighting of the US Gross Domestic Product (GDP), published by the US Department of Labor last week, revealed that the US economy grew at an insipid 0.5%, on an annualized basis, during the first quarter of 2016. This depressing result compared to the favored predictions of 0.7% and the previous quarter’s performance of 1.4%. The primary culprits, responsible for this deterioration, were substantial reductions in business inventories and declining oil prices which caused companies to significantly reduce their investments. Only the housing sector posted a moderate improvement.
In contrast, the economy of the Eurozone recorded its largest quarterly growth, during the first quarter of 2016, since the onset of the 2007/08 financial crisis. Robust consumer spending and rebounding company investment generated a rate of expansion which easily surpassed even the most optimistic forecasts by helping quarterly growth double its prior result. However, economists are now warning that this impressive performance may just be a temporary spike, which could be reversed quickly. This is because the Eurozone is currently inundated with high unemployment, deteriorating bank profits and excessive debt levels.
What to Expect This Week
On Monday, the Eurozone is scheduled to present key inflationary data which will confirm whether deflation has now definitely taken root. If so, then such an outcome could provide the European Central Bank (ECB) with enough incentive to instigate additional quantitative easing within the imminent future. Later, the US Institute of Supply will disclose its important manufacturing index which should extend its recent growth trend by surpassing its prior reading of 51.8.
The Reserve Bank of Australia will announce its latest interest rate decision and monetary policies on Tuesday. This event acquired greater prominence last week after Australia produced a very weak Consumer Price Index. As further stimulus is now on the cards, the implementation of any new quantitative easing will exert fresh pressurize on the Australian Dollar.
The Eurozone will release its second bout of inflationary data on Wednesday which is expected to deliver a range of expansionary figures exceeding their critical mark of 50. Next, Great Britain will reveal its Purchasers Managers Index (PMI) for April which should verify that its crucial construction sector is still acquiring traction by printing a value above its previous outing of 54.2. The USA will then post its ‘International Trade’ parameter for April. Investors will be hoping for an improvement on March’s deficit of $47.1 billion in order to provide proof that the US economy is beginning to recovery from a dismal first quarter. Australia will complete the session by releasing its ‘Retail Sales’ for last month which should provide vital insights into the current health of consumer confidence.
On Thursday, the United Kingdom will commence proceedings by publishing its PMI for its vital service section. Further growth is the current favored prediction as this indicator should register a value well above its critical 50 mark. The USA will then issue key labor data which will inform just how many Americans filed new claims for unemployment benefits during the previous week ending 30th April. Again, the result should reside within the long-standing range of 250k to 290k. Japan will finish the day by posting a premier inflationary indicator. If this parameter drops below 50 once again, then the BoJ may need to accelerate its current monetary easing program in order to achieve its designated target of 2%.
The pivotal event will occur on Friday when the USA delivers its eagerly awaited labor report for April. Economists are presently forecasting that US employers created over 200,000 new jobs last month and that the national ‘unemployment rate’ will remain steady at 5%. They will also focus on parameters, such as ‘Average Hourly Earnings’, in order to assess if such data supports any new inflationary improvements.