Financial Market Expectations

By FX Empire Analyst - Barry Norman
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ECB Director Mario Draghi may now have positioned himself as the difference between a tranquil summer and an action replayof 2011's nightmare summer shakeout in global markets. Comments from him branded him to be the savior of the Euro Monetary Union and that saw a surge in global markets.

US stocks rose for the week, giving the S&P’s 500 Index the longest rally since March, amid optimism Europe’s policymakers will act to ease the region’s debt crisis. US economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending.

Consumer confidence in July dropped to the lowest this year, new home sales unexpectedly fell from a two-year high while orders for equipment slumped. The Dow gained 1.9% for the week, followed by NASDAQ (1.12%) on optimism of better than expected US company’s results and European evangelism.

On the European side, European stocks rose for an eighth week as German Chancellor Angela Merkel and French President Francois Hollande joined European Central Bank President Mario Draghi in promising to do everything to protect the euro. The CAC 40 gained 2.7%, followed by DAX (0.9%), while FTSE 100 lost 0.43% for the week.

Asian stocks fell, with the regional benchmark index paring last week’s gains, amid concern Greece may not meet bailout targets and after the IMF said China’s economy faces significant downside risks. The MSCI Asia Pacific Index dropped 0.6% to 115.92 this week. The gauge has fallen more than 10%since this year’s high on Feb. 29 amid concern the global economic slowdown. Hang Seng lost 1.9% for the week, followed by Nikkei 225 (-1.19%) and Straights Times (-0.6%) for the week.

The euro recovered from three year lows to close at almost weekly highs. It closed above 1.23/$ mark. 

After hitting fresh three yearly lows last week, the euro recovered to close with smart gains of over one percent after statements by ECB’s president over the bank’s commitment to reviving the Euro. In the coming week apart from the economic reading the investors have geared up for the ECB policy on Thursday. After the comments by ECB president in the past week the investors will look at the central bank delivering further stimulus in the coming policy meeting.

On the rate front the ECB is expected to keep its rates unchanged at 0.75%. So we could see the euro remain positive ahead of the policy, but a failure to deliver on its commitments we could see a backdrop by the markets and could see the euro tumble.

Apart from the policy meet on the economic front, German Retail sales are expected to come in with a better reading for the second consecutive month with the latest figures expected to come in at 0.50%. But the same cannot be said about the Euro zone retail sales which could see a figure of 0.00% from a prior of 0.60%. The PMI numbers are expected to come in slightly higher which could support the Euro during the week.

So in the coming week we can see the euro remain in a  positive  range for the first half of the week with the  short term  trend  being decided after the ECB policy meet on Thursday in the week ahead, Next week's calendar has a double-whammy. The Fed's monetary policy statement will come one day before an ECB meeting packed with intrigue. ECB President Mario Draghi said earlier this week the bank was ready to do whatever was necessary, within its mandate, to save the Euro. At the same time that traders position themselves to benefit from the Fed's latest easy-money policy, those betting against market gains get out of the way and selling pressure recedes. S&P 500 earnings are expected to show a rise of 5.7% and if that numbers come as expected, we can see the entire technology group heading for a surge and ultimately the US markets. Asian markets will remain a follower of the international markets, fighting alongside its economic issues.

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