European Indices on the Radar
Though most of the Euro’s collapse is being attributed to the ECB’s massive QE program (€60 billion a month), investors understand that the Greek crisis has also weighed heavily on the common currency. Given the current very liquid environment, and couple it with the possibility that Greece might default within the next month or so and exit the Eurozone, it is clear why there are significant headwinds to any attempt for a Euro rebound. Nevertheless, and while the FX market is preoccupied with the possibilities of a Greek crisis, European indices prosper. The low Euro has benefitted European exporters, many of which are part of the makeup of the major European indices, e.g. the DAX, the CAC40 and the IBEX. Though most of the Eurozone’s major indices have been on a winning streak, investors will want further proof that, indeed, the low Euro is benefiting not only Germany’s DAX, but as well France’s CAC40 and Spain’s IBEX. Hence, this week, the focus in Europe will be on sentiment indexes, such as the PMI reports, the ZEW releases and IFO Business Climate survey. If a sentiment index suggests an improving outlook, investors’ appetite for Europe’s major indices is expected to continue, at least until next month when the possibility of a Greece default risk could climb and loom even the major stock market indices.
The focus on sentiment indexes means there are three pivotal days in which sentiment for the various European indices could tilt either way; Tuesday, Thursday and Friday. On Tuesday, the German ZEW index is due out alongside the ZEW index for the entire Eurozone; a surge above last month’s levels is critical for investors to push indices higher. The German ZEW index will naturally impact DAX sentiment primarily, while the Eurozone ZEW release will impact Eurozone indices across the board. On Thursday, PMIs releases from Germany, France and the entire Eurozone are due out. The German PMI will largely dominate the DAX while in France a beat in PMI could lift the CAC40 higher. As with the ZEW, a better-than-expected PMI reading for the Eurozone as a whole would benefit indices across the board. There is one caveat, however; if German and French PMIs disappoint, the respective indices would not benefit even from a better Eurozone area PMI. Finally, Friday will be all about the DAX with the German IFO set to be released. Once again, if the IFO is a beat, the DAX would benefit.
Aussie Going Down?
Last week, the IMF warned that more rate cuts were warranted from the Reserve Bank of Australia (RBA) and then the RBA itself stressed the downside risks to the Aussie economy. Given that, investors will watch the RBA minutes to be released this Tuesday to conclude if a rate cut is, indeed, coming soon. Though at the last meeting the RBA had decided to stand pat on its benchmark rate, if the minutes of that meeting show that there is a greater probability of a rate cut at the next meeting, then the Aussie could plunge against the majors, namely the US Dollar, the Japanese Yen and perhaps even the Pound Sterling.
Durable Goods Friday
While investors are naturally cognizant of incoming data from around the globe, it’s clear that data coming from the US tends to draw more attention and have a greater impact. This week, the focus will be on the Durable Goods release due out on Friday. Although the durable goods orders is not enough to dominate dollar sentiment for too long, it will certainly be the finale for the dollar this week and likely the driver of opening sentiment in the next. If durables good orders rise by 1% or more, the dollar may benefit while the opposite will likely be the case with a negative surprise.
Down to Business
Overall in Europe, the PMIs need to beat expectations for investors to continue to ignore the Greek crisis and push indices higher. When it comes to Aussie sentiment, of course, any indication of an upcoming rate cut could ignite Aussie short selling. In the US, the week’s grand finale will be durable goods which will dominate both Wall Street and the dollar; if durable goods fail to rise, both the dollar and Wall Street could suffer.
On the Plate
RBA Minutes (Tuesday) – If the RBA minutes release will raise speculations of a rate cut, the Aussie could plunge.
German & Eurozone ZEW Index (Tuesday) – If the German and Eurozone ZEW indexes beat estimates and rise higher, Eurozone indices and more specifically the DAX will benefit.
BoE Minutes (Wednesday) – If the BoE minutes reveal a move dovish BoE, the Sterling could be exposed to selling.
European PMIs (Thursday) – If PMI readings from the Eurozone, Germany and France beat expectations, the DAX and the CAC40 could rally as well as the IBEX35.
UK Retail Sales (Thursday) – If retail sales rise by more than 1% MoM, the FTSE100 could gain ground.
German IFO Business Climate (Friday) – If Business Climate improves, it will be viewed as positive for the German DAX.
Durable Goods (Friday) – The main event for both the dollar and Wall Street. If durables rise by more than 1%, both US indices and the dollar could gain.
Chart of the Week – Silver