The global rally came to a pause last week after release of the FOMC minutes and weak Chinese manufacturing data. While equity markets and commodities prices fell, Gold staged a rally after declining for 4 weeks.
The week, however, was off to a bullish start, with investors bidding up equities on the heels of Federal Reserve Chairman Ben Bernanke's prepared statements ahead of his appearance before Congress.
"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," said Bernanke.
Translation: The Party on Wall Street must continue this summer!
Well, at least that was the market's read until around 10:30 a.m. on Wednesday May 22, when the S&P 500 abruptly fell from its record high of 1687.
So, what triggered the sell off?
It was Bernanke's statement later where he said that the Fed could conceivably curb quantitative easing within the next few meetings if the job market shows "real and sustainable progress," causing the market to reverse directions.
But that wasn't all. Bernanke may have lit the flame but his colleagues at the Fed were the ones that poured the gasoline. Once the Federal Reserve's minutes from its latest policy-making meeting were released, the selloff gained momentum on word that Fed members were willing to scale back on monetary stimulus as early as June.
On May 23, stocks globally took a hit due to disappointing report on Chinese manufacturing activity. While major US stock market indices closed down only marginally, Japan's markets bore the brunt of the sell-off, with the Nikkei plunging more than 7%.
The market has managed to avoid any significant pullback since November 2012, and dips have been used as buying opportunities. Even with last week's 1.1% loss, the S&P 500 remains up 15.7% for the year.
This week, we get a host of new data, which should help investors get a better reading on the economy.
Following are Sentiment charts for S&P 500 (NYSE:SPY), DOW Jones, and NASDAQ (NASDAQ:QQQ).
Following is an economic overview for the week May 27 - May 31, 2013.
(All times EST)
Tuesday, May 28
10:00 — CB Consumer Confidence:
Based on the previous report, US consumer confidence index rose in March to 68.1 (month over month) vs. a forecast of 61.4. The current expectations are that March index may continue to rise which might affect commodities prices.
20:00 — Bank of Japan Governor Kuroda Speaks:
Bank of Japan Governor will give a speech at the Bank's Institute for Monetary and Economic Studies 2013 International Conference. The title of his speech is "The Financial Crisis and the International Financial System".
Wednesday, May 29
10:00 — Bank of Canada Rate Statement:
Bank of Canada will make its decision regarding the Canadian overnight rate. The Bank is expected to keep its policy unchanged and maintain its interest rate at 1%. However, the recent slowdown in Canada's economy and the decision by leading central banks to cut their respective cash rates might prompt Bank of Canada to reduce its cash rate.
Thursday, May 30
08:30 — US GDP q/q:
The first estimate of US growth had disappointed after analysts expected growth to come in stronger than the 2.5% annualised pace. Any upward revision will add to worries that the Fed may soon start to taper its asset buying.
08:30 — Unemployment Claims:
Weekly report will refer to the shifts in the initial jobless claims for the week ending on May 25. In the previous report unemployment claims fell more than expected (340K vs. 345K), this forthcoming weekly report may affect the path of US dollar and consequently commodities and stocks markets.
10:00 — US Pending Home Sales:
This report will show changes in pending home sales for April. In the previous report, pending home sales index rose by 1.5% (month over month). The data is an indicator for the developments in US housing market — a rise in sales may positively impact the US dollar.
10:30 — Natural Gas Storage:
Weekly report of the U.S. natural gas market will refer to latest developments in natural gas production, storage, consumption and prices as of May 25. In the previous report, natural gas storage rose by 89 billion cubic feet to 2053 billion cubic feet.
Friday, May 31
08:30 — Canada GDP m/m:
This monthly report will show changes in major industrial sectors for March 2013. In February 2013, real GDP increased by 0.3%. This report may affect the Canadian dollar, which is strongly linked with major commodities prices.
08:30 — US Personal Spending m/m:
Monthly update will refer to the shifts in income and outlays in the US during April. In the report for March personal income increased by 0.2%.
09:30 — Revised University of Michigan Consumer Sentiment:
University of Michigan will release its revised consumer sentiment monthly report which could offer an insight to recent developments in US consumers' sentiment. Based on the previous report, sentiment index fell to 76.4.
21:00 — China Manufacturing PMI:
The report for April 2013 showed a decline in Manufacturing PMI to 50.6. If PMI drops below the 50 point mark in the upcoming report, it could signal a slowdown in China's economy which may adversely impact commodities prices.
For more insights, visit the Market IQ blog.
This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.