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Weekly report Feb 22 to 26, 2016
In general, global markets finished the week with a positive mood, as global stocks rallied from the lows, and demand for safer havens eased off partially. High volatility remains for the next week with several important data from U.S. and EU markets on the schedule, as well as the result of OPEC’s negotiations/agreement with non-OPEC producers.
U.S. Data Watch
CB Consumer Confidence survey (due 3 p.m. GMT on Tuesday), which measures consumer sentiment on current conditions and future economic prospects, is predicted to retreat a little bit from 98.1 to 97.6. This number has significant impact on consumer spending - the factor that accounts for two third of the U.S. GDP.
Durable Goods Orders and Unemployment Claims reports due on Thursday are going to reveal insights about the U.S. manufacturing sector, and the strength of the labor market. Industrial production has declined for 10 out of 12 months till December thanks to weak demand globally, but the figure is expected to improve slightly in January. There is just a ghost of a chance that The Fed will continue the process of normalization in March, labor market seems to be resilient to the first rate hike.
For this week, the U.S. dollar is predicted to continue its revival on support from positive data but may cap its gains in the latter part of the week after the publication of second estimated GDP of Q4/2015. The number is expected to be revised down to 0.5% from the initial 0.7% reading.
European Markets Outlook
After two days of negotiations at the EU Summit in Brussels, EU leaders and UK Prime Minister David Cameron reached an accord about “special status” for Britain’s membership in the union. Accordingly, a referendum on the continued membership of the UK in The EU is set to be held on the 23rd of June 2016. Both the Euro and the Pound rose significantly after the news, but still remain in downward corrections from the highs.
The German Ifo Business Climate Index Reading will be released on Tuesday, which is forecast to skid slightly to 107.0 from 107.3, which may raise concerns about the economic outlook for the biggest economy in the Euro Zone. Moreover, ECB President Mario Draghi expressed his willingness and readiness to act against deflation and economic slowdown by additional easing, putting more downward pressure on the single currency.
In contrast, the Sterling may enjoy a brighter week than the Euro, as the risk of Brexit has been rolled back temporarily. On Friday, U.K's second estimate for Q4 2015 GDP, will be published, expected to show stable growth among market headwinds.
On the back of the decision to hold a referendum in the U.K.(on EU membership), which was concluded on Saturday, both the EUR/USD and the GBP/USD currency pairs may witness an up gap in the morning.
The oil price lost haft of its gains in the last two days of the week as the prospect for cooperation among oil producers remains uncertain. In the absent of unanimous commitment, it may not quite time for oil to stage a recovery.
On Saturday, Russian Energy Minister Alexander Novak stated “We agreed that all consultations should be completed by March 1”, as Iran was “constructive” and non-OPEC players, such as Mexico and Norway, were expected to also have a positive stance. Nevertheless, the Doha pact faced hindrance from Iran’s stubborn and the U.S.’s avoidance. Currently, Russia, Saudi Arabia and U.S. are the top three oil producers in the world with productions are 10.9, 10.1 and 9.2 million barrels per day respectively. It is admitted that supply side is the most critical problem causing the global glut currently. Therefore, consensus among the big three would mean a lot to the crude oil market at this point.
On Wednesday, U.S. Energy Information Administration (EIA) will report the change in the number of barrels of crude oil held in inventory in the USA. Both the data and OPEC’s “output freeze” deal will have mixed effects on the price. Overall, the oil price is persistently in a volatile spiral, hovering up and down in a narrow range (between $31 and $35) before the final decision from oil countries.
In the context of the market turmoil from further easing from ECB and BOJ, to China’s unexpected shifts in policy, along with the oil crash, gold has enjoyed a strong rally since the beginning of the year. In the short term, the precious metal may witness a correction from the peak of $1,260. Gold is expected to fluctuate in a wide range before recovering to above $1,300.