Major Events of Last Week
Global equities retracted sharply last Friday while bond yields continued their recovery after the Chairman of the US Federal Reserve, Ben Bernanke, advised that the central bank was seriously contemplating the reduction of its current monetary easing policies as early as its next meetings. Concerned investors subsequently fled to the hills by significantly reducing their risk appetite towards the end of last week.
The stock markets posted a second consecutive week of losses as fears mounted that an anticipated correction could now be imminent if the Fed instigates its intentions of curtailing its aggressive asset purchasing policy earlier than expected. The US major indices slumped last Friday epitomized by the Dow Jones Industrial Average plunging by a massive 208 points; the S&P 500 slipping by almost 1.5% and the NASDAQ declining by over 35 points.
After analyzing last Friday’s developments, prominent economists advised that investors are now running scared of the next Fed decisions and actions. Those traders that have enjoyed the impressive bullish trends recorded during 2013 so far will now be looking to exit their positions. They also added that fresh uncertainties will start plaguing the markets over the coming weeks which will almost definitely cap any further advances by risky assets, such as equities and the euro.
So far this year, the constant support provided by the US Fed has managed to propel the US major indices to a sequence of historic highs. During this time there has not been a serious drawback produced of any nature. This rosy picture now looks set to disintegrate as the global economies may soon have to stand on their own feet with reduced fiscal props.
Can they do it? With some many weaker-than-expected economic indicators released recently from all quarters of the world, the jury must still be out on that one. With the USA pumping out just a meager annual growth rate and strong evidence indicating that the economies of both the Eurozone and China are in prolonged states of contraction, the overall picture does not look too rosy.
What to Expect This Week
This coming week could be a pivotal one. This is because a spate of economic data releases is scheduled which will shine light on the health of the US labor market. Investors will be on edge because their expectations are increasing that good figures will be sufficient for the US Fed to commence tapering its stimulus policies as early as its next meeting in June. As such, many are hoping that the US labor reports will disappoint by producing numbers that miss analysts’ predictions.
The ADP private job report will be issued this coming Wednesday followed by the US jobless claims number on Thursday. These two important indicators will prelude the publication of the all-prevailing US non-farm payroll value on Friday. Economists are forecasting that US employers have generated about 168,000 new jobs during May which would be a slight improvement over the April figure of 165,000. In addition, they are predicting that the US unemployment rate will remain steady at 7.5%.
However, even if such results are confirmed, they would still be a worry. This is because economists are vehemently advising that over 200,000 new posts need to be produced consistently over a significant number of months in order to seriously reduce the current high employment rate in the USA. In addition, the Fed has repeatedly informed the markets that it will maintain its benchmark interest rates at the historic low levels until the US unemployment rate declines to 6.5%. With so much