Weekly Financial Markets Outlook

Posted by SM-INVEST -
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Last week started yet again with a sharp drop. As the week continued winds of optimism returned to the financial markets. This lifted equity indices not far away from the yearly highs.

Our weekly financial markets outlook report shows that on the European equity markets, risk appetite returned, taking equity markets close to their 2019 highs. The news that China and the U.S. will resume talks, a disorderly Brexit and stable U.S. jobs data lifted market worries. Expectations that the ECB would announce measures to support the economy on September 12 also contributed to the positive sentiment. European benchmark STOXX 600 index added 1.7% weekly rise, its third weekly gain in a row.

The U.S. dollar was lower on Friday against a basket of currencies. It was above the weekly low as a mixed U.S. job report in August gave support to the view of slowing expansion. In the aftermath, chances of more interest rate cuts from the Federal Reserve are on the table.

The major averages finished higher for a second straight week. The S&P 500 was up 1.8% on the week. The Dow added 1.5%, and the Nasdaq was up 1.8%. The latest jobs report showed payroll employment added 130,000 jobs in August. This is worse than expected figures, and the U.S. unemployment rate held steady at 3.7%.  Fed Chairman Powell said the economy is healthy and not in danger of falling into a recession. Market expectations are for another rate cut by the central bank of a quarter percentage point.

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The Week Ahead on Financial Markets

The upcoming week will open on Monday with a blast of economic data coming from the U.K. Iy will start with GDP data and manufacturing production data for July. Investors will put much of their focus on the British Pound, as GDP data is the most significant indicator of economic activity and economy’s health. Investors could watch the high volatility in GBP against other major currencies. A higher than forecast reading should be positive for the GBP.

Higher than expected manufacturing production’s figures are usually positive for the GBP.

On Wednesday U.S. economic data will start coming with PPI (Producer Price Index) data for August. PPI measures the change in the price of products sold by manufacturers. It is a significant indicator of consumer price inflation. A higher than the forecast reading could be positive for the USD.

Later that day, crude oil inventories data will be published. If the increase in crude inventories registers more than expected, it implies weaker demand and is bearish for oil prices.

Thursday is an important day on European markets with ECB interest rate decision with ECB press conference following the announcement. During the briefing, high volatility for the EUR could be the case. U.S. Core Consumer Price Index (CPI) will be published later on Thursday, which is a key indicator of the inflation trends. Higher than forecast readings is a positive indicator for the USD against other currencies.

On Friday, August Retail Sales data will be out. Investors should pay attention to the high volatility in USD and major U.S equity indices. Higher than expected data should be positive for the USD against other currencies and for the major equity indices.

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World markets

A pretty busy week is in front of investors with many major market-moving events in front. More Brexit instability in the U.K., major economic data in U.S. and rate cuts expectation by the ECB are the major events. These events should take most of the investors’ focus with Eurozone Consumer Price Index (CPI) announcement, to have a better understating of the Eurozone inflation trends. Higher-than-expected numbers are generally positive for the European currency against other major currencies.

On Wednesday, U.S. existing home sales for July will be public. This is a strong indicator of the strength of the housing market and the overall U.S. economy. Higher reading is in general positive for the USD against other currencies. Later that day, Crude oil inventories will be published. After last week’s unexpected inventories growth will be interesting to see this week’s numbers. If the increase in crude inventories registers more than the forecast, it implies weaker demand. It could lead to a negative outcome for crude oil prices.

U.S. Federal Open Market Committee (FOMC) Meeting Minutes is due later on Wednesday. Currency traders examine these meetings for clues for the future interest rate decisions.

Closing the trading week

On Thursday, German manufacturing Purchasing Managers’ Index will be published. This data can be an accurate indicator of overall economic performance, as purchasing managers usually know their company’s performance. Better results are generally positive for the EUR against other major currencies.

On Friday, Federal Reserve Chairman Powel holds a speech. Investors are generally looking for clues about future interest rate policy. New U.S. home sales data will be public as well on Friday. Higher than forecasts will be positive for USD and U.S. major indices.

Next week will continue to be volatile mainly because of the continuing tensions between the U.S. and China on the trading arena. Keep an eye on the markets!

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