Major Events of Last Week

At the end of a week primarily dominated by escalating fears about the true health of the global economy; a hawkish speech by Janet Yellen, the Chairperson of the US Federal Reserve, and the release of impressive data by the USA helped appease such concerns. Prior to these events, the markets had adopted a wary stance following the recent Fed decision when it opted to refrain from hiking its benchmark interests rates citing geopolitical issues and inflationary uncertainties as the major reasons for doing so. The leading US indices produced a mixed reaction last Friday demonstrated by the Dow Jones Industrial Average soaring by nearly 115 points; the S&P500 trending water and the NASDAQ slumping by just over 45 points.

Yellen emphasized during a speech made last Thursday that an interest rate hike before the end of 2015 was still very much on the table. She specifically advised that the Fed committee was unanimous in its opinion that recent global economic instabilities would definitely not derail the policy decisions of the US Central Bank. Specifically, she seemed bent on countering any misconceptions generated by the dovish attitude projected by the Fed during the previous week.

Prominent economist summarized this development by stating that Yellen had unquestionably provided a confused market with much needed clarification. They added that investors should now be able to adopt a more positive mindset offsetting the total bewilderment produced by the statements and decisions released from the last meeting of the Federal Open Market Committee (FOMC). New surveys supported this optimism by revealing that investors were now increasing their bets that a rate hike will be implemented before the end of this year.

The publication of better-than-expected economic data by the USA last Friday also enhanced the euphoric mood by disclosing that Gross Domestic Product had increased at a faster pace than previously advised during the second quarter of 2015. Specifically, the US economy had expanded by 3.9%, on an annualized basis, compared to the previous reading of 3.7%. The primary drivers behind this improvement were stronger consumer performance and construction activity. Another posting confirmed that US Consumer Confidence had risen during September to 87.2 beating analysts’ expectations of 86.7.

This impressive US economic data and the hawkish Yellen speech has certainly laid the foundation for the Fed to instigate its first rate hike since 2006 within the near-term. Nevertheless, many economists are now warning about a slump in the pace of US economic growth during the third quarter as a direct result of a sizeable slowdown in the vitally important US service sector.

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What to Expect This Week

No major economic releases are scheduled for Monday.

The USA will present a key Consumer Confidence Index for this month on Tuesday. Expert consensus is predicting a slump from the prior reading of 101.5 to 96.00 driven by consumer concerns about recent global economic woes.

New Zealand will commence Wednesday by also disclosing a topmost Business Confidence Index for September. With the NZ economy presently experiencing excessive stress, this figure is expected to extend recent monthly declines. Australia will then reveal its August’s Building Approvals which are anticipated to decline by 2% on a monthly basis. Later, the United Kingdom will publish the final version of its Gross Domestic Product for the second quarter of 2015. As yearly growth should remain constant at 2.5%, this release could be a ‘non-event’. The Eurozone will complete the session by issuing the first sight of its Consumer Price Index (CPI) for this month. Although this parameter is expected to remain steady, it will still be scrutinized intently by economists because of its importance on the deliberations of the European Central Bank (ECB).

China will post its Manufacturing PMI for September on Thursday. The prospects for this vitally important indicator are not good since it is expected to remain firmly lodged with contractionary territory. Should this prediction be confirmed, then global equities could dive into another tailspin. The UK will subsequently declare its Manufacturing Project Managers’ Index (PMI) for September, which is favored to report further deterioration by falling from 51.5 to 51.3. If so, then the strong British Pound should be identified as the primary culprit for this further weakness. The USA will finish the day by announcing its own PMI for this month, which is anticipated to confirm, with a print of 53.00, that its all-important manufacturing section is now stabilizing within expansionary territory.

On Friday, Australia will proclaim its Retail Sales for August which should confirm a second successive month of gains by registering an increase of 0.4% compared to its previous reading of +0.1%.

The pivotal event of the week will then occur when the USA discloses its Labor Report for September containing, possibly, the most eagerly awaited economic figures on the planet. This is because these results are the primary data used by the Fed when formulating future policy decisions. This time around, US employers are forecasted to have created about 200,000 new jobs during August and the Unemployment should remain unchanged at 5.1%.


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