Major Events of Last Week
The major catalysts influencing the directional movements of the financial markets last week were, unquestionably, the announcements and actions of major global central banks. The European Central Bank (ECB) set the ball rolling last Thursday when it assertively advised that further monetary easing was now definitely needed in order to stimulate the struggling European economy. The People’s Bank of China (PBoC) then surprised investors a day later by slicing its benchmark interest rates for the sixth time in less than twelve months. The impacts of these dramatic developments were significant exemplified by the euro crashing across the board while global equities soared higher. For example, the foremost US indices powered their way higher last Friday illustrated by the Dow Jones Industrial Average soaring by just over 155 points; the S&P500 climbing by nearly 22 points and the NASDAQ surging by almost 112 points.
The euro collapsed towards the end of last week after Mario Draghi, the ECB President, delivered a very dovish speech. He emphatically advised that the need for additional stimulus and further interest rate cuts were now definitely warranted in order to boost the stagnating European economy. Prominent analysts summarized this key development by stating that they have subsequently deduced that the EUR/USD could well retest March’s lows of 1.0500 if the ECB instigates actions supporting its new rhetoric. They also emphasized that substantial cuts in deposit rates will exert massive pressure on the single currency.
Before fully coming to terms with the new ECB dovish stance, investors were stunned even further when the central bank of China trimmed its interest rates and reduced its reserve cash requirements last Friday. The PBoC opted to adopt its most aggressive monetary easing stance since the 2007/08 financial crisis after the world’s second largest economy slumped to a 25 year low by recently reporting growth under 7%. One of the primary implications of the PBoC latest move is that 50% of all the World Central Banks are now supporting monetary easing with numerous others poised to follow suite.
The financial markets and investor sentiment were lifted even further last Friday after a number of major US technological giants released quarterly earnings reports which beat analysts’ expectations. Microsoft witnessed its share value rise slightly over 10% to register its highest level in 15 years after posting its ninth consecutive month of profits. Amazon equity registered a record price of almost $620 per share after declaring a second straight month of profits. Facebook also had a good day after its stock climbed by 1.8% enabling it to pierce above its pivotal $100 mark for the very first time.
What to Expect This Week
Germany will launch proceedings by presenting an important Business Climate Index for September, which is expected to record growth for the fourth consecutive month. If such a performance is confirmed, then the downtrodden euro should receive a much needed fillip.
On Tuesday, the United Kingdom will disclose the first sighting of its Gross Domestic Product (GDP) for the third quarter of 2015. Investors will be keen to learn if the recent steady growth range, between 0.5% and 0.7%, can be maintained this time around. Any serious deviations could well be market-moving for the British pound. Later, the USA will reveal its Durable Goods Orders for last month which could provide vital insights into the current state of US consumer confidence. However, care should be adopted when studying this parameter as it is notorious for producing volatile readings on a monthly basis.
Australia is scheduled to release key inflationary data on Wednesday. Experts are predicting that the Consumer Price Index (CPI) could slump lower from its previous reading of 0.7% as a direct result of the recent constant decline in commodity prices. The pivotal event of the week will then occur when the US Federal Reserve announces its last monetary policy statement and decision. Although investors are currently favoring that the Fed will keep its interest rates on hold, they will nevertheless study all statements issued very carefully in order to glean any new insights into when the US central bank will most likely hike rates for the first time in almost a decade. The Reserve Bank of New Zealand (RBNZ) will complete the session by publishing its own interest rate decision and accompanying statements. There is a strong possibility that the RBNZ could cut rates especially if the NZD/USD rallies during the interim.
On Thursday, the USA will provide a first glimpse of its GDP for the third quarter. If this figure fails to meet analysts’ predictions of 2.1%, then the chances of a Fed interest rate hike during 2015 will diminish sharply.
The Bank of Japan will declare its monetary statement and policy on Friday. Additional stimulus may be on the cards in order to bolster the flagging Japanese economy. Canada will complete the week by issuing its GDP for August. The recent slump in oil prices is forecasted to curtail two previous months of successive growth.