Week in Review

The world stock markets experienced another wave of bearish sentiment last Friday before rallying strongly towards market close. Investors eventually opted to increase their risk appetite after the USA released a spate of economic indicators that confirmed its economic recovery was still acquiring traction. However, the prevailing mood was soured by the confrontation between Moscow and Europe over the Ukrainian crisis. Nonetheless, the key US indices surged towards the close of last week exemplified by the Dow Jones Industrial Average climbing by nearly 45 points; the S&P500 inching higher by 7 points and the NASDAQ edging upwards by just over 20 pips.

An important survey was presented last Friday by Thomas Reuters and the University of Michigan disclosing that US consumer sentiment has slumped during May amid fears that income salaries could stagnate during 2014. This result provided additional credence to the viewpoint that the national economy could start struggling during the second half of this year.

However, other data countered this pessimism by revealing that the vitally important US housing sector had received a significant boost during April. Specifically, the number of new approved building permits rose to register levels last seen almost six years ago by providing fresh hope that this market was finally stabilizing. In addition, the US Commence Department released a report demonstrating a surge in new housing construction projects during last month. However, a number of prominent analysts are now advising that the chances of a 5% to 10% correction in the financial markets is presently becoming an increasing possibility amid geopolitical worries and the release of inconsistent economic data.

The conflict in the Ukraine again captured the world’s attention late last week after Vladimir Putin warned that Russian oil supplies to Europe could be curtailed on the 1st June if Ukraine persists in not servicing its extensive bills. Subsequently, Germany proceeded to stress that this ongoing conflict is already causing serious adverse impacts on its national business interests within Russia, which could result in long-term damage.

In particular, a major report was released advising against the introduction of stiff new sanctions against Moscow by the Eurozone because such measures could directly interfere with the operational abilities of numerous German enterprises operating within the Soviet Union. This document further advised that the potential loss of market share by European and German companies would be prove to be sustainable by causing almost irrecoverable damage.

What to Expect This Week

A bout of important global economic indicators is scheduled for release this coming week.

Following a quiet Monday, the Reserve Bank of Australia (RBA) will present the minutes from its last policy meeting on Tuesday. Although this document is expected to expose continuing discord between the government and the RBA, it is not predicted to reveal any new surprises. Great Britain will then disclose important inflation data including its annual CPI figure, which is forecasted to climb to 1.7% in April from March’s 1.6%, as a direct consequence of the Easter holiday.

The Bank of Japan will launch Wednesday by issuing its latest Monetary Policy Statement, which will be followed by a Press conference. Economists are advising that this could be a volatile affair because the BoJ now has sufficient records pertaining to the recent instigation of a new sales tax. Consequently, the introduction of new stimulus measures is a distinct possibility. Later in the session, the Bank of England will deliver its minutes from its latest policy meeting. Investors will be keen to learn if this report will endorse the recent dovish sentiment displayed by the BoE. At the same time, the UK will release its Retail Sales figure which is expected to record a surge during April. One of the week’s most prominent events will then be the posting of the minutes from the last meeting of the Federal Open Market Committee (FOMC), which should confirm that the Fed will stick with its current tapering program.

Elections will take place throughout Europe on Thursday. If the extremist and anti-euro contenders perform well then such outcomes could be market moving. China is also scheduled to publish its PMI for its Manufacturing Sector, which is predicted to report another weak figure. The Eurozone will then post its own PMIs with expert consensus favoring a minor drop to 53.9 from April’s 54.0. Next, the UK will present its Gross Domestic Product for the first quarter of 2014 which should endorse the previous estimates of 0.8% on a quarter basis and 3.1% annually. The British Pubic finance number, released at the same time, should validate an improving fiscal state. Later, the USA will disclose its existing Home Sales figure, which could surpass analysts’ expectations based on the recent promising results produced by this key sector.

The EU elections will continue into Friday. Germany will present a key business sentiment survey which should report a decline during April.  The USA will conclude the week by revealing its New Homes Sales number. A strong result is predicted amid the encouraging releases of Housing Starts and Building Permits last week.

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