Week in Review
The global markets rounded last week by climbing higher on Friday with the S&P 500 registering another intraday historic high. The main catalyst driving equities upwards was the publication of a bout of encouraging economic indicators by the USA which bucked the recent trend of disappointing results. Prominent analysts summarized February’s stock performance by exclaiming that the month was exiting in a grand style after acquiring impressive gains during the period. The key US indices closed the week epitomized by the Dow Jones Industrial Average climbing by almost 50 points last Friday; the S&P500 edging upwards by 5 points although the NASDAQ dropped by just over 10 points.
The USA published the latest revision of its Gross Domestic Product figure for the fourth quarter of 2013 by trimming its forecast downwards. A value of 2.4% was issued by the US Commerce Department which was a significant decline from the 3.2% advised in January and substantially lower than the 4.1% growth rate posted for the third quarter.
Economists explained this modification by advising that economic performance was almost certainly influenced by extremely bad wintry conditions experienced throughout the larger part of North America in recent months. This viewpoint did gain fresh credence on Thursday after Janet Yellen, the new Chair of the US Federal Reserve, endorsed such an opinion before the US Banking Committee.
Other data posted revealed that US consumer sentiment had increased at a faster pace than predicted despite escalating concerns over a prolonged and bitter winter. The number of US used homes purchased during January managed to surprise the markets by inching upwards countering a dismal performance recorded towards the end of 2013.
In addition, the Purchasing Managers Index, released by Chicago’s Institute of Supply Management, surged to 59.8 by surpassing market expectations. This outcome was particularly well received by investors as it demonstrated that manufacturing activity in the Mid-West had improved during February by reversing three consecutive months of declines.
The big question now dominating the markets is how much of the recent US economic slowdown can be attributed to its harsh winter as opposed to a more serious fundamental catalyst. Currently, as the favored consensus is to blame the weather, the markets are still advancing in a well-defined bullish trend. However, economists are emphasizing that a spate of impressive economic data now needs to be issued by the USA, within the short-term, in order to justify such a stance.
What to Expect This Week
This coming week will be a busy time with the following events scheduled to occur:
China will post its Final Manufacturing PMI on Monday which is expected to reveal a slowdown for the second successive month. Later, the Eurozone will also present its Final Manufacturing PMI which should not produce any major surprises. The equivalent UK indicator is anticipated to edge higher from 56.7 in January to 56.8 as a direct result of improving weather conditions. Finally, the US Institute of Supply Management will be released its PMI which should provide vital insights into the key US labor figures, due to be announced on Friday.
On Tuesday, the Reserve Bank of Australia (RSA) will declare its benchmark national interest rate decision. Despite the recent release of a flurry of very disappointing economic data and a particularly dismal labor report, the RSA is still not expected to reverse its new bullish stance.
Great Britain sets the ball rolling on Wednesday by revealing its Final Services PMI which should retract slightly from January’s 58.3 to 58.0. The Eurozone will subsequently publish its Gross Domestic Product for the last quarter of 2013. Investors are expecting that no change will be advised with a figure of 0.3% firmly on the cards. Later in the session, the Bank of Canada will inform the markets about its interest rate verdict. Economists are forecasting a steady response with emphasize on imminent challenges. The USA will issue its non-manufacturing PMI on the same day which should provide further clues about the publication of Friday’s all-prevailing labor report.
Thursday will witness both the Bank of England (BoE) and the European Central Bank (ECB) stating their new national interest rate policies. The BoE is not predicted to announce any changes by remaining in an ‘on-hold’ status. Similarly, an unchanged ECB should not create any waves by springing any surprises on investors.
Without question, Friday will be the pivotal day of the week. German will commence proceedings by advising the markets about its latest industrial production performance. Analysts are expecting that the European economic powerhouse will boast an increase of 0.8% by stemming a previous decline of 0.6% indicating a sound start to 2014. The USA will then publish its eagerly awaited Non-Farm Payroll (NFP) figure. Investors will be on edge waiting to discover if a third dismal monthly result will be forthcoming following the appalling bad numbers issued in both December and January. If such an outcome is confirmed, then the weather will almost certainly be blamed once again. However, a positive result will provide the US Federal Reserve with some justification for its current stimulus-trimming policies.