Financial Markets Preview – Week of November 16, 2014

Week in Review

The global stock markets held steady last Friday despite the USA releasing an impressive batch of economic indicators. For example, Retail Sales bounced emphatically back during October from its dismal performance the month before. This result suggests that American consumers were preparing to boost their spending as the festive season starts powering up to full steam. This viewpoint was boosted even further by a key Consumer Sentiment Index rising to register its highest value since the summer of 2007. However, the leading US indices did not respond as enthusiastically as would be expected to this promising figures epitomized by the Dow Jones Industrial Average dropping nearly 21 points; the S&P500 remaining steady while the NASDAQ inched higher by 4 points.

Prominent analysts explained the muted response of the financial markets to the encouraging US data by advising that stocks were exceptionally oversold in mid-October. As such, they have recently been undergoing a mild corrective dip in order to address this status. However, as they should now begin to absorb these promising results, investors should expect prices to recommence their upward journey during the weeks ahead.

Specifically, the USA posted economic data last Friday disclosing that Retail Sales grew by a healthy 0.5% during last month after disregarding the fickle impacts of food services and petrol. This outstanding performance was assessed by leading economists to be a solid indication that American consumers were beginning to regain their composure and spring back to life. If this observation can be verified over the coming weeks, then it will definitely help the US economy continue to expand at a steady pace.

In addition, other strong numbers released last Friday should also help bolster investor confidence as this year draws to a close. For instance, US Consumer Sentiment soared higher this month to register levels last seen seven years ago. The highly respected Thomson Reuters/University of Michigan index posted 89.4, which is its best print since July 2007. However, all was not rosy in the garden as other key components of this index revealed that US citizens expect long-term inflation to decline. This finding should concern the US Federal Reserve which, in direct contrast, favors a higher inflation rate.

The US Department of Labor also published a report last Friday revealing that import prices had declined during September by 1.3%. The primary catalysts behind this result were the strong dollar and falling oil prices enabling Americans to purchase overseas goods more cheaply.

What to Expect This Week

A spate of key global economic indicators is scheduled for released this week, as follows.

Japan will commence proceedings by presenting the first showing of its Gross Domestic Product for the third quarter of 2013. Analysts are favoring a rebound from a previous decline of 1.8% to a +0.5%.

Mario Draghi, President of the European Central Bank, is scheduled to deliver a speech on Monday. If he reiterates that a new bout of monetary easing is forthcoming, expect the euro to tumble once again.

Glenn Stevens, Governor of the Reserve Bank of Australia, will speak at the Annual dinner of the Committee for Economic Development on Tuesday. He is expected to issue comments that will cause the Australian Dollar to weaken even further. Great Britain will then declare its Consumer Price Index for last month. The annual number is forecasted to have grown by 1.5% although the monthly number should remain steady at 0%. Next, Germany will disclose its ZEW survey of economic sentiment for this month. Pundits are expecting this parameter to extend last month’s decline.

The USA will reveal its Building Permits and Housing Starts for October on Wednesday. Both these indicators should continue to print values above the vital 1M level. Perhaps the pivotal event of the week will then occur during the afternoon EST when the US Federal Reserve is scheduled to release the minutes from its last Federal Open Market Committee (FOMC) policy meeting. Investors will be keen to learn the contents of this historic document which records the end of QE3.

China will kick-off Thursday by delivering the first sight of its Manufacturing Purchasing Manager Index (PMI) for November. Analysts are concerned that a figure below 50 could forewarn the start of a new recession. The United Kingdom will subsequently announce its Retail Sales for October. Expert consensus expects this indicator to post an increase of 0.4% this time around after falling 0.3% during the previous month. Later in the session, the USA will issue its Consumer Price Index for October. A print close to 2% could encourage the US Federal Reserve to start contemplating the merits of an early interest rate hike.

Canada will complete the week by releasing its Consumer Price Index for last month on Friday. If a result above 2% can be delivered, then expect the Canadian Dollar to rally against other major currencies.