Bumpy Economic Outlook for the Last Week

Market Update

The economic outlook for the last week saw a cyclic pattern. The week started off positively with the economy recovering from losses from the last week. However, by the midweek the markets had started declining once again. The reasons responsible for this decline were the deteriorating situation in Ukraine and Libya, the Gaza-Israel conflict and the news that the US would be launching airstrikes in Iraq. The week ended positively again, as US share prices went up in Friday.

The Ukraine conflict has led to trade bans on Russia from the EU and the US and vice versa. This has led to an increase in geographical risks and investors are now worried as to how the eventual normalization of global monetary policy will affect markets.

However, most analysts anticipate that the trade bans imposed by Russia will only have a minimal impact on the European economies and even smaller impact on the US economy.

The euro region witnessed an economic setback with the news of Italy and Germany facing Quarter 2 GDP contractions, which eventually lead to US treasuries and German bunds yields to sharply decline. Therefore, it can be concluded that the market only expects the first Fed rate hike in September 2015.

Since early June, the trend of European equities under-performing relative to the US stocks has continued. Nikkei closed five percent down for the week, showing a decline for the Japanese equities. However, despite the recent poor performance of the Japanese markets, there is an optimistic view that the renewed impetus from corporate reforms should provide market support.

The industrial output in Germany increased by 0.3% in June, which was still below the expectation of 1.2% increase. However, it was an improvement from a 1.7% decline in May.

On a positive note, China’s trade balance for July was the highest ever recorded, exceeding the expected exports.

In the US, the initial jobless claims also fell to the second lowest for the year. The labor productivity has also risen in the second quarter.