Weekly Market Review — August 31–September 4
The Main Event of the Week Is NFP
At the end of last trading week almost all major competitors of the US currency showed a decrease. More than any other the New Zealand dollar showed a decline, losing 3.26%. The Australian currency also declined by 1.96%. European currencies such as the British pound, the Swiss franc and the euro dropped 1.83%, 1.735 and 1.725 respectively while the Canadian currency showed a symbolic 0.25% drop. But the Japanese yen recorded a 0.53% rise, which was caused by viewing the yen as a safe-haven asset. The last trading week began with the collapse of the Chinese stock market and sell-off in the rest of the world stock markets. Investors were selling the US currency as well, as they began to shift their expectations of the first rates hike from September to December. Concerns over a slowdown in the global economy led investors to invest into currencies with low interest rates such as the Japanese yen and the euro as a funding currency. This week will be full of important economic news. Market participants should pay attention to the consumer price index in the Eurozone, scheduled for Monday at 09:00 (GMT). Tuesday will be a meeting of the Reserve Bank of Australia, whose decision will be announced at 04:30 (GMT). Also this day will be released a report on the labor market in Germany at 07:55 (GMT) and the GDP of Canada at 12:30 (GMT). On Wednesday will be published Australian GDP. On Thursday the European Central Bank will announce its decision on interest rates, followed by a press conference of the head of the regulator. Finally, Friday promises to be the most intense day of the week. Switzerland will report on changes in consumer prices, later will be released the data on the Eurozone GDP, as well as data on Canada’s labor market. At the same time, the main report of the week is, of course, the NFP.
According to the results of the last trading week, all major US stock indices showed positive change. The index of wide market S&P 500 showed an increase of 0.41%. The Dow Industrial also increased by 0.87%. High-tech NASDAQ index showed the biggest growth, recording an increase by 2.37%. The opening of the last week was marked by the “Black Monday”. Panic selling in global stock markets has also affected the US stock market. The Dow fell more than 1,000 points. It was the largest one-day drop in the history of the index, almost 119 years. On Tuesday, the market began to calm down, and investors began to react to other economic indicators. Recovery in the stock markets of the USA was supported by the positive data on the US economy. Durable goods orders were better than the average forecast of analysts. The final estimate of US GDP also exceeded the expectations. On Friday was published data on personal income and spending, which showed a slower pace of growth of the American economy. This week investors will expect a government report on the US labor market, which could clarify the situation around the timing of the first rate hike.
Major stock markets finished last week higher after falling on Monday and Wednesday. As a result, the German DAX rose by 1.72%, the British FTSE added 0.97% and the French CAC showed an increase by 0.95%. Despite the rise in European stock markets, investors fear to buy the stock assets amid uncertainty surrounding the Chinese economy. The European stock markets were supported by a recovery of commodity prices, as well as the positive statistics on the US economy. However, this optimism somewhat decreased since the beginning of the new trading week amid falling of Asian stock markets. Also, investors will be looking for clues on the timing of monetary policy tightening by the US Federal Reserve.
Last week trading was in a downward trend. The exception was only the “Black Monday”, when investors were buying gold as defensive asset against the backdrop of a panic sell-off in global financial markets. The sentiment wasn’t very long, and investors have switched to search for clues to the first rate hike by the US Federal Reserve. Recall, gold is a defensive asset that is better than others saves its value during the global financial crisis, and with it, the asset becomes unattractive at a time when interest rates rise, because it can’t compete with more high-yield assets. Statistics on the US economy, which was published last week, showed strong growth. Investors are closely monitoring the statements of the Fed members, as well as economic data in order to determine how likely the first rate hike will take place at the September meeting. This week, all the market participants expect a government report on US employment.