Global economic data has been mixed over the past month, with positive news out of the United States balancing negative news in the Eurozone and Asia. But over the next month, financial markets will be closely watching several key economic figures. In particular, U.S. employment figures released in early June could set the tone for the month.
U.S. Stays the Course, Mulls QE3
Growth in the United States has been keeping up pace, but concerns about the labor market remain. Companies added just 115,000 workers in April, according to Labor Department figures, which was the smallest increase in six months. And while the jobless rate fell to a three-year low of 8.1%, the move was attributed to a greater number of people leaving the labor force.
Federal Reserve Chairman Ben Bernanke remains ready to intervene with another round of quantitative easing (QE3), if the economy takes a turn for the worst, judging by minutes from the central bank's April monetary policy meeting. While the general economy has been showing some signs of improvement, it may not be to the point of self-sufficiency quite yet.
Finally, the U.S. faces many external threats, including the Eurozone's crisis and potential conflicts in the Middle East that could increase energy prices. With consumers in a fragile state, thanks to lackluster employment, further pressure on consumer prices could send the economy back into troubled areas and force the Federal Reserve's hand.
Eurozone Politics Could Prove Toxic
Greece has plunged into political chaos after no political party succeeded in winning a majority of the votes during the May 6 elections. The two parties that secured significant votes have been unable to form a coalition government due to a disagreement on whether or not to continue with austerity measures required by an international bailout agreement. New elections are expected on June 17, but financial markets will remain jittery in the meantime.
In France, former conservative President Nicolas Sarkozy lost an election to socialist candidate Francois Hollande. The latter promises to replace austerity with growth measures designed to narrow deficits in troubled countries. With agreements already in place for austerity, any changes in these policies could signal a political deadlock in the Eurozone.
Upcoming elections could signal further problems, too. Voters in Germany's largest state gave Angela Merkel's opposition parties enough support to form a governing coalition, which could pose a problem ahead of national elections held in 18 months. The rising voter tide against austerity could prove toxic for upcoming elections and jeopardize bailouts.
SEE: Europe's Big Bailout Has Consequences
Asia Proves to Be a Mixed Bag
Asia has traditionally been a global growth driver, but China's recent slowdown is proving problematic for the region. In April, industrial production in the country grew only 9.3% year-over-year, which is the slowest rate since the financial crisis began. Meanwhile, tightened lending led to business confidence dropped for a third consecutive quarter to 39.2.
China may be heading towards a hard landing, but Japan has proven to be quite a different story. Recently, the country's government upped the country's economic outlook due to improvements in private consumption and exports. The increases were largely driven by automotive subsidies and rebuilding after the country's devastating earthquake.
Britain Faces Blowback from Eurozone
There is little question that Britain is devoted to implementing harsh austerity measures, but troubles in the Eurozone continue to take their toll. Recently, the Bank of England cut its growth outlook for the British economy and warned that near-term inflation could be higher than expected. But the biggest risk stems from the Eurozone crisis.
With the Eurozone accounting for the vast majority of its exports, the British economy has faced slower demand for its goods. The slower demand eventually led to reduced consumer spending and income growth at a time when consumer prices are on the rise. As a result, the Bank of England lowered its forecast to 0.8% this year, from the 1.2% that it predicted earlier.
InsightsAusterity is an economic term describing government measures to reduce and eliminate budget deficits.
InvestingBritain may have dodged a bullet, but it certainly was not an innocent bystander and still managed to become collateral damage.
InsightsThese countries have significant trading relationships with European countries, and could feel the brunt of a euro collapse.
InvestingWe explain the significance in a post-Brexit world of the U.K.'s vote to leave the EU just days before the start of a 15-month run of key Eurozone elections.
InvestingGiven the volatility that has already shaken the global economy, the world's largest economies will be leaned on to stimulate growth in 2016
InvestingThe EU is facing its strongest test since the potential "Grexit." Are pressures now severe enough to break it up?
InvestingThe eurozone crisis is complicated and rapidly changing. One such misconception is that Greece is the cause of the problem.
Financial AdvisorWho wins the presidency isn't the only political factor that will impact business and your practice this year. Here's what else to expect.
InvestingThe Greek and Spanish crises continue to spiral beyond control. Find out what could lie ahead for the eurozone.
InvestingWith a backdrop of modest global growth, we see some potential for spread tightening in 2016.