Major Events of Last Week

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Prospects that the US Federal Reserve will hike interest rates before the end of 2016 received a boost last Friday when the US Consumer Price Index (CPI) rose at a faster pace than expected during August. Declining oil prices were countered by sizeable increases in healthcare and rent costs enabling inflation to advance ever closer towards the Fed’s designated target of 2%. Oil prices, in fact, recorded their lowest values in practically two weeks last Friday after both Nigeria and Libya resumed near-maximum production following months of extensive disruption. The leading US indices slumped towards the end of last week illustrated by the Dow Jones Industrial Average plummeting by 76 points; the S&P500 dropping by 7 points and the NASDAQ falling by 4 points.

The US Department of Labor posted a key economic indicator late last week disclosing that its CPI edged higher during August by 0.2% after remaining static at 0% in July. On an annual basis, the CPI also inched upwards by 1.1% compared to 0.8% registered the month before. The core figure, without energy and food costs, nudged higher by 0.3% beating July’s gain of 0.1% and registering its largest improvement since early 2016. These results surpassed expert predictions favoring increases of 0.1% and 0.2% for CPI and core CPI respectively during August. These better-than-expected figures incited the US Dollar to strengthen across the board but caused stocks to slump in value.

Although the US Federal Reserve will certainly be pleased with August’s inflationary improvement, it is still not expected to hike interest rates at the end of its two-day monetary policy meeting commencing Tuesday of next week. The primary reason for this cautious approach is the recent publication of a spate of lackluster US economic parameters epitomized by a weak August labor report and ‘Industrial Production’ and ‘Retail Sales’ results for last month which missed analysts’ expectations. Key Fed officials have already endorsed this viewpoint by stating that they will need to view signs of both climbing inflation and improving consumer spending before they will veto a hike in interest rates.

Volatility in the oil market keep hitting the headlines last week as a looming glut continued to force prices downwards. Prominent economists summarized this development by advising that a wave of bearish catalysts and weak fundamentals had emerged recently. In particular, they highlighted the adverse influences of rocketing Libyan and Nigeria productions; an increase in US stockpiles and the release of worrisome OPEC and IES monthly reports. In addition, warnings emerged last week that Iran was starting to approach its sanctioned oil export level after delivering in excess of 2million barrels per day during August.

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What to Expect This Week

The Reserve Bank of Australia (RBA) will launch proceedings by issuing the minutes from its last monetary policy meeting on Monday. Investors will be keen to discover if this document provides any insights into whether the RBA is presently considering the introduction of further stimulus measures.

On Tuesday, the USA will present a major housing statistic. Housing Starts need to exceed their prior print of 1.211 million units in order to provide confidence that this important section is starting to emerge from a prolonged recession. Later, the Bank of Japan (BoJ) will announce its latest interest rate decision and monetary policies. This affair could generate extensive volatility as the BoJ is forecasted to reduce rates in order to bolster a faltering national economy.

The pivotal event of the week will then occur during Wednesday afternoon EST when the US Federal Reserve will declare its latest interest rate decision and monetary policies. As the rate decision is predicted to be a close call, expect the financial markets to experience high volatility no matter what the Fed opts to do. The Reserve Bank of New Zealand (NBNZ) will complete the day by proclaiming its own rate decision and monetary policies. The odds of a rate cut have increased dramatically after New Zealand recently posted a disappointing Gross Domestic Product (GDP) for the second quarter of 2016.

On Thursday, the USA will disclose its ‘Jobless Claims’ for the previous week, ending 18th September, which should once again verify that the number of Americans filing first claims for unemployment benefits continues to remain within the longstanding range of ‘240k to 290k’. The USA will also post its latest ‘Existing Home Sales’ data should hover about its critical 5.4 million mark.

The Eurozone is scheduled to release a sequence of primary inflationary indicators on Friday. The French ‘Composite Purchasing Managers’ Index (PMI)’ should continue to reside within contractionary territory below 50.0; German PMI should extend its recent gains by beating its prior mark of 53.6 while the PMI for the entire Currency Bloc should top its 53.5 handle. Canada will terminate the week by revealing its CPI and Retail Sales for August. Analysts are hoping that both these important parameters can rebound from July’s dismal showings of -0.2% and -0.1% respectively.

 

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