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Middle East Regional Struggles Command Headlines

The Middle East has become engulfed in the latest outbreak of conflict in Yemen which is threatening large oil producers including Saudi Arabia. The proxy war being waged by Iran to unseat Saudi influence in the region is putting further pressure on an already strained relationship with one incident having the potential to set off a chain of events further darkening the outlook.

Last Week In Brief

The emerging conflict in Yemen overshadowed financial markets as the possibility of an expanded conflict in the Gulf sent oil prices soaring. Not helping matters was pervasive weakness in the dollar which started to reverse late in the week following stronger employment data. US GDP failed to beat expectations of 2.40% expansion, printing at a more modest 2.20% but the market reaction was fairly muted aside from renewed dollar momentum. US housing data remains mixed and more concerning is the stagnation in inflation which printed at an annualized pace of 0.00% for both the US and UK. With both nations on the cusp of deflation, the risk renewed downward price pressures could broadly impact the economic outlooks for both nations.   The Eurozone outlook has improved moderately on the back of a weaker Euro, stronger German exports, and cheaper energy prices which have managed to keep inflation in positive territory. However, headline risks remain with the dark clouds circling the Greek economy.

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Week Ahead

Today marks the deadline for Greece to submit a list of reform proposals to the European Commission in order to unlock further bailout funds. Speculation of an accord being reached is high, but the distance between negotiating teams remains wide as Greece seeks to avert a default and exit from the Eurozone. The major event of the week is US nonfarm payrolls which will give investors further clues about the pace of interest rate hikes from the US Federal Reserve. Aside from unemployment, other major drivers in the week ahead include GDP figures from the UK and Canada, manufacturing data from across the globe, and CPI numbers from the Eurozone. Further developments in the Middle East are likely as the conflict in Yemen threatens to drag in other regional powers in the fight for energy hegemony.

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