Week in Review
Global stocks experienced a traumatic time last week as two major catalysts contributed to a sustained buildup of bearish pressure. China continued to publish worrisome economic indicators which generated seriously increasing speculation about the true health of the world’s second largest economy. In addition, Russia and the West persisted to lock horns over the destiny of Ukraine. The leading US indices declined last Friday epitomized by the Dow Jones Industrial Average dropping by nearly 45 points; the S&P500 drifting downwards by just over 5 points and the NASDAQ slumping by 15 points.
Despite a last minute effort on Friday to ease tension ahead of a critical referendum scheduled to be held on Sunday, the Russian and U.S. Secretary of States failed to achieve any significant headway when they convened in London. In fact, Sergei Lavrov and John Kerry summarized the outcome of their talks by advising that the two sides were still miles apart.
The crucial vote over this weekend will decide whether the Crimean Peninsula will remain part of the Ukraine or if it will join the Soviet Union. One of the major concerns about this event is that a pro-Russian outcome could ignite the disintegration of the Ukraine as other regions may then follow suit by merging with the Soviet Union.
Last week witnessed both sides engaging in non-stop sabre-waving with the West threatening the instigation of sanctions against Russia. In response, the Soviet Union poured additional military resources into Crimea and issued assertive statements threatening the occupation of other Ukrainian regions. Investors would only sit back and watch in awe as these unsettling developments evolved. As such, they drove the financial markets downwards by flocking to safe-haven assets, such as the Yen and gold.
If this geopolitical stress was not enough, then China also contributed to the chaos by revealing increasing evidence that its economy recovery was under serious strain. Specifically, Li Keqiang, the Chinese Prime Minister, issued a stark warning last Thursday by emphatically stressing that his nation’s economy would confront severe challenges during 2014. In addition, the prospects of new debt defaults heightened conjecture about the well-being of the Chinese financial sector. Prominent analysts summarized these affairs by advising that the Chinese economy had definitely shifted down a few gears based on the dismal economic data recently posted.
What to Expect This Week
Without question, the geopolitical drama in both the Ukraine and China will continue to dominate the financial markets this coming week. Significant volatility is anticipated which could well be accompanied by sharp price spikes if any sudden surprises are unleashed. In addition, the following major events are scheduled over the coming days.
The week commences with the Eurozone publishing its Consumer Price Index on Monday. If a figure lower than 1% is produced, then such a result will exert pressure on the euro.
Both the Eurozone and Germany will issue key consumer confidence surveys on Tuesday. The German one will be carefully watched because it declined over the last two months. The USA will present its Housing Starts and Building Permits data later in the session. Investors are expecting improvements in both figures as weather-related issues begin to subside. One of the pivotal events of this week could be the policy decision released by the Federal Open Market Committee. Janet Yellen is not expected to introduce any changes by adhering to current stimulus tapering policies. Japan will conclude the day by disclosing its Trade Balance which should post a mild improvement.
Great Britain will reveal its unemployment rate on Wednesday. Another good result will boost the GBP/USD once again. The Bank of England will then publish the minutes from its last monthly meeting and no surprises are anticipated. New Zealand is scheduled to release its Gross Domestic Product which should comply with expectations of a 1% increase.
A two-day meeting of the European Council will commence on Thursday. Speculation is increasing that intervention may be forthcoming to restrict further euro gains. The Reserve Bank of Australia will present the minutes from its last policy meeting later in the day. Statements endorsing its current monetary stance are expected. The USA will round the session by posting its existing homes sales. Analysts are hoping for a good result but the recent bad weather could upset the applecart.
Friday will be a quiet affair with just Canada presenting its retail sales figure. A rebound from last month’s dismal 1.8% drop is forecasted with a growth figure of 0.8% on the cards.