Global Market Outlook
The Dollar was volatile last week and strengthened slightly by 0.2% versus six major currencies. U.S. stock markets performed well last week, reaching new high records boosted by positive news. Some of last week’s economic indicators suggest that the 4th quarter GDP growth will be stronger than previously estimated. Consumer spending has significantly improved; Retail sales rose much more than expected for the 5th consecutive month in November.
The outlook for business activity positive; Industrial production improved in November, a significant increase from the past 4 months. The Fed conducted two separate surveys that tracked business activity in the New York State Region and the Philadelphia district. Both surveys rebounded by a large margin. The Philly Fed Manufacturing Index expanded by its fastest pace in more than five years. Indicators for the U.S. housing sector didn’t show significant improvement. Housing Starts recorded a 3.9% gain in November, but retreated more than 11% in the previous month. Building permits fell by 4% from October to November, most likely indicating slower activity pace in the near term.
The Federal Reserve Bank continues to focus on the Labor Market condition. The unemployment rate is currently at 9.8%, signaling that the Economic growth pace is not sufficient enough to being down unemployment.
The Fed warned we might see the unemployment rate edging-up even more toward 10% in the near future. The Federal Open Market Committee – the policy-making arm of the Federal Reserve Bank decided at the beginning of last week to keep monetary conditions unchanged. Inflationary environment remains very low; annual inflation declined from 1.2% in October to 1.1% in November. This makes it more likely that the Federal Reserve will consider additional monetary conditions to spur economic activity given its outlook for labor market condition.
Gold prices rebounded on Friday but retreated 0.4% over the course last week. Year-to-date gold prices still gained nearly 25%. Outlook for Europe remains severe; the euro fell 0.4% versus the U.S. dollar on Friday after Moody’s Investors Service downgraded Ireland’s debt rating by five notches. Also, the European Union Economic Summit that was held last week failed to produce additional measures that could provide solutions for short-term problems. Analysts expect the dollar to remain strong versus major currencies mostly on positive expectations in the U.S.
This week investors will focus on the U.S. Bureau of Economic Analysis’ final release for third quarter GDP growth that was upwardly revised from 2% to 2.5% annualized in November. The consensus forecast of analysts is now for 3% annualized growth and figure is expected to be released on Tuesday. Investors will also be focused on existing and New Home Sales; both declined in October and analysts don’t expect much of improvement as supply is heavy and the demand is very weak. On Thursday the Bureau of Economic Analysis will also report Personal Income and Consumer Spending data; in October both indicators recorded positive gains, which analysts expect to continue.
Major Currencies Cross Rates
Sophie J. Fletcher
Head of Research
For the Disclaimer Please click here.