By Övünç Kutlu
New York – Washington Letter for Week beginning April 25

What happened last week?

The U.S. financial investment giants Goldman Sachs and Morgan Stanley reported high losses in their 2016 first quarter profits and revenues. In spite of this, the Dow Jones Industrial Index closed the week with a 0.6 percent increase, while Standard & Poor's 500 Index rose 0.5 percent. On the other hand, Nasdaq Technology Index recorded a 0.7 percent loss on a weekly basis as stocks of technology heavyweights Google and Microsoft decreased.

Oil prices began last week with an increase despite the failure of the Doha oil summit to generate the anticipated outcome of freezing oil production. The main reason behind rising prices in the first half of the week was the oil workers’ strike in Kuwait, which more than halved the country’s output and created a supply panic in the global crude market. However, when the strike was over on Wednesday, prices began falling yet again. American benchmark West Texas Intermediate ended the week just below $44 a barrel, while international benchmark Brent crude finished the week a little over $45 per barrel.

The global rating agency Standard & Poor's (S&P) warned last Tuesday that credit conditions around the world are weakening with increasing volatility in global markets. It listed volatility in financial markets, China's ability to rebalance its economy, weak commodity prices, and funding difficulties as some of the current concerns with global growth.

The U.S. passed its first broad energy bill since 2007 last Wednesday. The bill includes expediting liquefied natural gas exports, modernizing electricity and pipeline infrastructure and cyber-security, promoting renewable energy, upgrading energy efficiency in buildings and preventing greenhouse gases.

German carmaker Volkswagen and U.S. authorities reached a settlement regarding the company's emissions scandal. The German automaker offered its consumers the options of buyback of vehicles or alternatively fixing them to meet emissions standards. Financial details about the settlement were not disclosed.

On April 22, 171 countries committed to sign the Paris Agreement on Climate Change at the headquarters of the United Nations (UN) in New York.

UN Secretary-General Ban Ki-moon urged all countries to move quickly to join the agreement at national level so that the Paris agreement can enter into force as early as possible.

What will happen this week?

This week the markets around the world are focused on the U.S. Federal Reserve’s (Fed) meeting that will begin on Tuesday. The Federal Open Market Committee (FOMC) will make a statement on Wednesday about the Fed’s two-day meeting. The bank is not expected to make a change in interest rates. Most analysts agree that the decision to raise the rates could come at the Fed’s June meeting, and perhaps another this December.

The market will also closely follow the U.S.’ gross domestic production (GDP) for the first quarter of 2016. While the previous quarterly growth rate was a 1.4 percent year-on-year, the market expects the first quarter growth rate to be 0.7 percent. Some of the reasons behind the lower expectation are the weak profit and revenue results of major U.S. corporations, the increasing strength of the U.S. dollar against other currencies that negatively affect American exports, and low consumer spending in the U.S.

On Friday, personal spending and income for March, and employment wages for the first quarter of the year will be announced.

If Thursday’s and Friday’s macroeconomic data comes above expectations, the Fed could take them as positive signals about the overall well-being of the U.S. economy, and the possibility of raising interest rates in its June meeting could intensify.

Meanwhile, oil prices are expected to fluctuate between $40 and $45 per barrel this week, barring any sudden and unanticipated supply shocks from northern Iraq and Libya, or the revival of the oil workers’ strike in Kuwait.

However, as Saudi Arabia is expected to increase its oil production gradually in the coming weeks due to the rising domestic electricity demand over the summer period, this could be seen by investors as a rise in the global glut and could create a downward pressure on crude prices.

26 Apr,2016