Week in Review

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Investors opted once again to dismiss another weak US economic indicator released last Friday by blaming the poor performance on the torrid weather conditions currently blanketing large parts of North America. Consequently, they drove global stocks higher enabling major US indices to record their second consecutive week of gains. For example, the Dow Jones Industrial Average soared by almost 130 points; the S&P500 crept upwards by nearly 9 points and the NASDAQ inched higher by 4 points.

The USA posted important data towards the end of last week which disclosed that its industrial output had surprisingly slumped by 0.8% during last month. This worrisome result registered the largest decline in over 4.5 years by badly missing an expected growth rate of 0.3% advised by most prominent economists. However, investors did not interpret this outcome as a sign of a weakening economy but, instead, attributed it to the impacts of severe wintery conditions. Analysts summarized this development by explaining that with over half of the USA immersed in extreme weather conditions since the start of 2014, its manufacturing output was bound to suffer eventually.

The posting of other USA data points were far more promising. For instance, export prices increased by 0.2% during January by generating a third monthly improvement in succession. Such an outcome is normally assessed to be an encouraging sign for USA manufacturers.  Despite the adverse influences of a bitterly cold winter, a very important consumer sentiment index produced by Thomson Reuters/University of Michigan succeeded in remaining unchanged by recording a value of 81.2.

As such, last Friday witnessed another surge in stock prices as trading conditions were still assessed to be bullish amid the continual flood of easy money into the financial markets by the world’s central banks. In Europe, investors cautiously endorsed the political developments in Italy which subsequently helped the euro to climb against most other major currencies. Matteo Renzi, the leader of the center-left, replaced Enrico Letta as the Italian Prime Minster after the latter failed to pass a sequence of major reforms. Although this change demonstrates that Italy has now had three new governments in less than twelve months, hopes are high that Renzi will be able to revitalize a struggling Italian economy.

What to Expect This Week

There are a number of major global events scheduled to occur during this coming week. The main ones are as follows.

Monday is expected to be relatively quiet with the North American markets closed in celebration of President’s Day.

Tuesday kicks off with the release of the minutes from the last meeting of the Reserve Bank of Australia (RSA) when a more neutral tone was adopted. If the verdict to adopt this new stance was tight, then the markets may need to reassess their viewpoints following the recent posting of a very weak unemployment report. The Bank of Japan (BoJ) will then announce its Interest Rate Decision. A press conference will follow shortly during which the BoJ will endorse its latest policies. Latter in the session, the United Kingdom will release its key CPI index figure which is expected to register a monthly decline of 0.5%. Finally, Germany will present its ZEW Survey, which is a major business sentiment gauge. Analysts are predicting an improved performance will be recorded for February compared to that of the previous month.

Great Britain will reveal its Unemployment Rate and Claimant Count Change on Wednesday. Economists are forecasting another impressive labor report although the unemployment rate should remain steady at 7.1%. A potential market moving event will be the disclosure of the minutes from the last meeting of the US Federal Open Market Committee (FOMC). The major point of interest will be whether all the members were fully in support of the Fed’s current stimulus trimming policy.

Thursday will witness the publication of the Chinese Manufacturing PMI. The importance of this indicator cannot be understated as the last one ignited the recent emerging market crisis instigating a major sell-off in stocks. If a value of 50 is not exceeded, then a similar outcome could ensue. If that was not enough drama, then the Eurozone will disclose its own manufacturing PMI shortly afterwards. Analysts are forecasting a modest monthly increase. The USA will subsequently supply its Consumer Price Index, which is a key inflation report capable of inducing serious surges in equity volatility. Will last month’s growth of 0.3% be repeated this time around?

The UK is scheduled to declare its Retail Sales figure for January on Friday. Economists are expecting that a decline will be recorded following December’s very strong result. The USA will then deliver its Existing Home Sales number which is expected to be significantly influenced by the current extreme weather conditions. Growing speculation suggests that this key parameter will register its fifth month of consecutive declines.

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