Week in ReviewGlobal stocks fundamentally consolidated their positions last Friday after recording historic highs during the earlier part of the week. A major catalyst was generated when Mario Draghi, the President of the European Central Bank (ECB), informed the markets that the ECB was now seriously contemplating the instigation of additional stimulus measures as early as June. He added that the primary reason for such an action was to counter deflation in the Eurozone as well as bolstering the region’s flimsy economic recovery.
Immediately after this news hit the wires, the single currency began to weaken dramatically against a basketful of other major currencies. Nevertheless, prominent analysts were quick to advise that the US dollar, in particular, is not likely to be able to capitalize on the plight of the euro until real evidence is produced confirming that the ECB does seriously intend to support further stimulus policies.
In addition, the borrowing costs of member countries, such as Ireland, Spain and Italy, plunge drastically to register historic lows amid growing speculation that the ECB would soon implement a major bond buying program in an attempt to control the insidious effects of deflation. This development was well received by both Spain and Italy, which were at the epicenter of the European debt crisis a few years ago. Both countries desperately need a boost to their economies in order to restrict increasing debt levels.
In the USA, the leading indices basically trended water last Friday by advancing within a restricted horizontal channel epitomized by the Dow Jones Industrial Average slipping lower by almost 15 points; the S&P500 declining by 3 points and the NASDAQ inching higher by just 1 point. A rally in high growth stocks helped the markets to stabilize after enduring sizeable losses on Thursday. Specifically, major household names led the recovery including Twitter, the Priceline Group and Google, which all registered healthy gains towards the close of last week.
Analysts summarized this particular trend by stating that investors have been seeking signs for a bottom in the recent significant decline of the NASDAQ. Essentially, they have been concerned that the sharp sell-offs experienced last week could be the precursor for a more serious market correction. However, the rebound registered last Friday should now soften these concerns by helping traders regain their confidence and boost their risk appetite.
What to Expect This Week
A bout of key economic data will be published by the major global trading regions of the world over the coming days.
After a quiet Monday, China will post its Industrial Production, Urban Investment and Retail Sales figures early Tuesday. The first parameter is especially important since it has been recording a steady decline since the autumn of 2013. Later, Germany will produce a key investor confidence survey which is expected to register a falling value as a direct result of the strong euro. Australia will then present its annual budget which could contain new policies aimed at limiting the present strength of the Australian Dollar. Finally, the USA will disclose its Retail Sales number for April. An improvement is predicted following the posting of the recent impressive US labor report and warmer weather in North America.
Great Britain will launch Wednesday by revealing its Unemployment Rate and Claimant Count Change. Analysts are forecasting that the former will decline from its previous reading of 6.9% to 6.8% by hitting its lowest level since the spring of 2009. A little later, the Bank of England (BoE) will release its vital Quarterly Inflation Report. If a low rate is posted then such a result could provide the BoE with enough justification to keep its benchmark interest rate on hold for an extended period of time. However, the housing sector could be the fly in the ointment.
On Thursday, Japan will issue its Preliminary Gross Domestic Product for the first quarter of 2014. Although this parameter has missed analysts’ expectations for the last three quarters, the recent introduction of a new sales tax could reverse fortunes this time around as it boosted spending in March. The Eurozone will subsequently present its own Gross Domestic Product for the first quarter which is anticipated to increase by 0.4% supporting an encouraging annual growth for 2014 of 1.1%. Later in the session, the USA will publish its Consumer Price Index. This result is not expected to alter the Fed’s current tapering policies in any form or shape. Canada will complete Thursday’s proceedings by disclosing its Manufacturing Sales. Investors will be keen to discover if this indicator can reverse the recent trend of disappointing economic results.
The USA will end the week by presenting a key consumer confidence index on Friday. As this figure is difficult to predict with any great accuracy at this stage, analysts will rely on the publication of the Retail Sales figure on Tuesday to provide deeper guidance.