Major Events of Last WeekGlobal equities rose last Friday enabling them to record their best weekly performance in nearly two months. However, investors are now advised to adopt caution as alarms bells are beginning to ring in the metal markets epitomized by copper posting a 6 year low. Major Central Banks were also busy last week demonstrated by the US Federal Reserve hinting strongly that it may commence monetary tightening next month. In direct contrast, Mario Draghi, the President of the European Central Bank (ECB), stressed that additional stimulus is now a viable option. The primary US indices strengthened last Friday exemplified by the Dow Jones Industrial Average soaring just over 76 points higher; the S&P500 rising by nearly 6 points and the NASDAQ climbing by almost 25 points.
The world’s stock markets pressed upwards at the end of last week by totally dismissing a potentially serious crisis developing in commodities. The primary catalysts behind this worrisome development are the escalating prospects of higher US borrowing rates and persistent uncertainties about the true health of the Chinese economy. An understanding of this problem can be acquired by studying the current plight of copper; an excellent indicator of global economic strength because of its extensive industrial usage.
Prominent economists are now voicing significant concerns that copper prices could continue to weaken as a direct result of a substantial slowdown in Chinese demand. This valuable resource slumped again last Friday by posting its lowest value in practically 6.5 years before implementing a minor rally later in the session. Revered analysts are now predicting that the demand for other raw materials could also start waning because many Asian and emerging markets are still struggling to generate any meaningful economic recoveries.
The implications of the looming divergence between the hawkish monetary stance of the Fed and the dovish one of the ECB began to garner impetus last week. Investors are now increasing their bets that the US Central Bank will instigate its first interest rate hike in nearly a decade during December. Meanwhile, the ECB is now considering expanding its present asset purchasing program and trimming benchmark deposit rates next month in order to counter persistent European economic growth issues and stem the worrisome threat of deflation. In a speech last Friday, Mario Draghi specifically addressed these issues by advising that if the current trajectory of present ECB policies is not sufficient to produce the desired effects; then actions will be taken to bolster inflation as rapidly as possible.
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What to Expect This Week
The Eurozone will kick-off the action by presenting the first sighting of its Manufacturing and Services PMI surveys for October on Monday. Weak results will practically ensure that the European Central Bank will introduce new stimulus during December. The USA will next disclose its Existing Home Sales for last month which is expected to slump this time around.
On Tuesday, Switzerland is scheduled to reveal its Employment Report for the third quarter of 2015. Investors will study this data carefully especially considering that the neighboring Eurozone is on the brink of further monetary easing. Later, Germany will post a vitally important Business Survey which should provide key insights into how companies assess the present health of the European economy. The USA will then publish its Gross Domestic Product (GDP) for the third quarter of this year. Expert consensus is currently favoring an annualized growth rate of 2.0%. A better outcome should be bullish for the US Dollar. The USA will then finish the session by releasing a primary Consumer Confidence Index which should extend a monthly sequence of strong consecutive readings.
The USA will commence Wednesday by issuing its Durable Goods Orders for October. This parameter should pare two successive monthly declines by recording growth of 1.65%. The USA will then declare its New Homes Sales for last month. A rebounding value of 500k on a yearly basis is predicted following September’s disappointing reading of 468k.
On Thursday, Australia will proclaim its Private Capital Expenditure (Capex) for the third quarter. Analysts are forecasting that Capex will contract for the fourth straight period in a row.
The United Kingdom will complete the week by delivering the second revision of its GDP for the third quarter of 2015. This indicator should remain steady at 0.5% on a quarterly basis. If not, then the British Pound could experience a fresh bout of volatility.