Stock markets and most of the high yielding currencies saw gains into the end of last week and this could continue if Home sales data out of the US comes in positively. These figures will be analyzed by markets along with US Durable Goods orders, GDP out of Germany and the Purchasing Manager’s Index (PMI) out of the wider Eurozone.
We have seen very consistent gains in global stock prices for the last month and a half but there are some major questions as to whether or not these rallies have stemmed from true confidence in the world economy or simply from the low trading volumes that are usually seen during the Summer months. As markets start to return to full strength, a greater level of attention will be paid to economic figures like the ones to be released next week and with stock prices holding at relatively elevated levels, and this rally will be vulnerable if next week’s data disappoints market expectations.
Consensus Estimates for Next Week’s Numbers
Looking at the reports scheduled for release, total purshases innnew and existing housing units is expected to rise to an annual rate of 4.89 million, which would be a stable increase from the June figures (which showed a rate of 4.72 million). Durable goods orders (orders for items designed to last more than one year) are also expected to show an increase, at a faster pace than at any time so far this year.
We will also see the meeting minutes from the latest Federal Reserve meeting and this will give market analysts an indication of which economic sectors are getting more of the Fed’s attention as it contemplating additional rounds of quantitative easing stimulus. These figures will be compared with the German GDP data, which will give markets an idea of the extent to which the European debt crisis has affected the region’s largest economy (and chief creditor for the indebted countries).
Most of the attention will be centered on the US data, as it appears earlier in the week but the German and Eurozone data will likely determine the directional close on Friday. Valuations in the S&P 500 are pushing near the highs for the year, so investors will start to view risk to reward trades as they favor the downside. European equities markets have some further room to extend before similar levels are seen but if there are any major moves in the coming weeks, they are much more likely to occur to the downside, given the recent upward surges.
The DAX continues to press higher inside of its weekly symmetrical triangle but the trendline resistance is coming near (in the 7130 region). This area is also historical resistance so prices are likely to have some difficulty overcoming this area. Look to establish short positions on rallies next week, targeting a drop back to support in the 6870 region first. A clear break of 7130 negates this bias and turns things bullish for the remainder of the year.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.