Major Events of Last Week

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Investor sentiment continued to improve last Friday enabling the world stock markets to register their best weekly performance in practically four years. The primary catalyst behind this bullish movement was the publication of the minutes from the last meeting of the Federal Open Market Committee (FOMC). Specifically, this important document strongly indicated that the US Federal Reserve is now seriously contemplating the delay of its first interest rate hike until 2016.  Global equities and down-trodden commodities were subsequently boosted by this revelation illustrated by the latter posting its largest gains in many years. The premier US indices nudged higher last Friday typified by the Dow Jones Industrial Average climbing by nearly 35 points; the S&P500 inching higher by almost 2 points and the NASDAQ edging upwards by slightly over 17 points.

Revered economists summarized last week’s developments by advising that the US Federal Reserve has now definitely entered a critical stage. Essentially, the US Central Bank must devise a well-conceived plan detailing how it intends to effectively introduce monetary normalization without derailing the US economic recovery. In fact, the FOMC minutes revealed the extent of such deliberations which eventually encouraged the Fed to adopt a cautious stance by opting to keep its benchmark interest rates unchanged.

The US central bank primarily refrained from hiking rates during September because it was particularly concerned about a potential global economic slowdown possessing the ability to severely destabilize US industrial growth. This viewpoint acquired even more traction by the recent release of a very disappointing US Labor report for September. This document effectively demonstrated that global geopolitical developments were already beginning to stifle the US labor market. Consequently, many analysts are now predicting that the Fed will not start monetary tightening until sometime in 2016.

One of the main beneficiaries of these dovish events was oil prices which rallied sharply from recent extensive lows to record their largest weekly gains since the spring of 2009. In addition, traders opted to bolster their risk appetite by searching for bargains within the suppressed emerging market and commodity trading sectors.  For example, improving copper prices enabled the correlated Australian Dollar to strengthen across the board by allowing it to continuously appreciate in value over a period of almost two weeks. The US Dollar was subjected to significant pressure during that time amid declining prospects of a Fed interest rate hike during 2015. Currency specialists are now predicting that such trends will continue, at least, during the short-term.

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What to Expect This Week

No important events or data releases will occur on Monday.

China is scheduled to present key trade data for September on Tuesday. Investors will scrutinize this data intently especially after recent scares concerning the real health of the Chinese economy. Expert consensus currently forecasts a total trade balance of about $48 billion and that exports and imports will decline by 6% and 16% respectively. Later, the United Kingdom will declare its Consumer Price Index (CPI) for last month which is expected to rebound from its prior reading of 0% to 0.2% on a monthly basis. Germany will then disclose a key economic sentiment index for October which is predicted to slip lower form 67.5 to 65.8.

On Wednesday, China will again lead the way by revealing its CPI for September. This release could, in fact, be the pivotal event of the week and should confirm that the rate of inflation slumped to 1.8%. The USA will next issue its Retail Sales for last month which should counter the previous retracting figure by rising 0.2% this time around.

Australia will launch Thursday by posting its employment report for last month which should confirm that just over 7,000 new jobs were created during that period. The unemployment rate is anticipated to remain steady at 6.2%. Later, the USA will publish its CPI for September, which is expected to report a monthly decline of 0.2%. Such an outcome will reduce prospects even further of a Fed interest hike during 2015. New Zealand will complete the session by releasing its own CPI for the third quarter which is forecasted to drop by 0.2% from 0.4%. A worst result will could send the New Zealand Dollar into a tailspin.

The USA will terminate the week by declaring a key Consumer Sentiment Index for this month. The Michigan Sentiment Index is expected to extend its gains by climbing to 88.5.


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