Traders this week are ready to focus closely on the virtual performance of Federal Reserve politicians at the bank’s annual Jackson Hole Economic Policy Symposium.
The event, which takes place from Thursday to Saturday this week, will serve as a forum for several discussions around Fed politicians’ plans to announce and implement a shift in the central bank’s monetary policy stance. Investors have been watching closely for several months to hear when officials will begin to slow down their purchases of treasuries and mortgages, which have taken place at a rate of $ 120 billion a month for more than a year during the pandemic.
This asset buying program had been an important policy underlying US stock markets this year, providing liquidity throughout the economic crisis caused by the virus. But as the economy makes progress in recovering, Fed officials’ talk of pulling the reins on this program has begun to rise.
Last week, Federal Reserve officials signaled that the announcement of the start of downsizing was closer. According to the minutes of the Federal Reserve meeting in July, most monetary policy makers believed that the economy would have made enough progress to justify a tightening.
Most participants noted that, given that the economy developed broadly, as expected, they considered it appropriate to start reducing the pace of asset purchases this year, as they saw the committee’s “significant further progress” criterion as satisfactory. to the price stability target and so close to being satisfied in terms of the maximum employment target, “according to the FOMC minutes.
But as many scientists have noted, the central bank still has a host of meetings back in 2021 to serve as a platform for further discussion or announcement of downsizing. As a result, Jackson Hole this week may cause few ripples, with politicians like Federal Reserve Chairman Jerome Powell sticking to their previously telegraphed language of waiting to see further improvements in the labor market before escalating the talk of slowing further.
“Jackson Hole next week is definitely a measure of when we might hear a really solid language about conical. I don’t really expect much from Jackson Hole,” said Garrett Melson, Natixis Investment Manager Solutions’ portfolio strategist, told Yahoo Finance last week. “We’re more in camp that we’re probably starting to hear something about the November meeting. Maybe they’s as quick as December to actually start implementing the wife. But I’m still more in camp that January is probably when we start to see a slow taper, probably in the football field of $ 15 billion a month. “
“They are still very, very deaf. They are a little less deaf,” he added. “But it’s a bit of semantics at this point. Taper is very well documented and well known. We know it’s coming. It’s just a matter of timing and should really not surprise many investors out there.”
As for the ultimate market impact of downsizing, if the result is similar to the response from the last announcement of downsizing in 2023, investors can prepare for a moment of volatility and some sector rotation below the surface.
“In 2013, Fed Chairman Bernanke’s comments on downsizing catalyzed a five-day, 40 bp backup in 10-year dividends and a 5% drop in the S&P 500,” said David Kostin, Goldman Sachs’ chief US equities strategist, in a note last week. “The initial signal from the conical tantrum eventually turned volatile over the course of a year of extremely strong stock returns.”
“The S&P 500 rose 5% during the roughly two months following the outburst, led higher by the materials sector, consumer discretion and the health sector,” he added. “In December, the S&P 500 had an annual return of 32%. When the Fed reiterated its commitment to a accommodative policy, growth exceeded value and cyclical stocks outperformed defensive ones.”
Personal expenses, income
New economic data on consumer spending and income will also be in focus later this week, with reports on both metrics due to be released on Friday.
Consensus economists expect to see personal spending slow to just a 0.4% monthly cut in July, declining from June’s 1.0% rise.
Just last week, the department’s data showed that retail sales fell more than expected in July, down 1.1%. The pressure pointed to more spending moderation as the impact of stimulus controls earlier in the year eased further, lowering the bar for Bureau of Economic Analysis’ monthly personal spending data.
Other data have also highlighted the slowdown in consumer spending, especially given the recent spread of the Delta variant, which started in mid-summer.
“Although service spending started strongly in July and was boosted by the holidays, our overall BAC credit and debit card data suggest services for services, particularly travel and leisure, slowed markedly in the second half of the month, possibly due to rising Delta concerns, Bank of America economist Michelle Meyer wrote in a note Friday.
Friday’s consumption report also comes with data on personal income, which is also expected to have ticked up only slightly on a monthly basis. Economists are looking for a 0.1% increase in July, which would match the pace of the previous month.
However, even with declining incomes, the personal savings rate may have risen as an early round of child payments helped offset a slower pace of income growth, some economists noted.
Advance payments for child taxation delivered this month were translated into a lower tax burden and therefore a 1% increase from month to month to disposable income, consequently leading to an increase in the savings rate to 10.0% from 9, 4% in June, “Meyer predicted.
Monday: Chicago Fed National Activity Index, July (0.09 in June); Markit US Manufacturing PMI, preliminary August (expected 62.8, 63.4 in July); Markit US Services PMI, preliminary August (expected 59.0, 59.9 in July); Markit US Composite PMI, preliminary August (59.9 in July); Existing home sales, month-to-month, July (-0.3% expected, 1.4% in June)
Tuesday: Richmond Fed Manufacturing Index, August (expected July 25, 27); Sale of new homes, month-on-month, July (3.6% expected, -6.6% in June)
Wednesday: MBA Mortgage Applications, week ended August 20 (-3.9% last week); Goods for durable goods, preliminary July (-0.2% expected, 0.9% in June); Unsecured orders for capital goods excluding aircraft, provisional July (expected 0.5%, 0.7% in June); Non-prudent shipments of capital goods excluding aircraft, provisional July (0.6% in June)
Thursday: Initial unemployment claims, week ended August 21 (352,000 expected, 348,000 last week); Continued claims, week ended August 14 (expected 2,780 million, 2,820 million last week); GDP on an annualized basis quarter-over-quarter, second estimate in Q2 (expected 6.6%, 6.5% in previous press); Personal consumption, second estimate in Q2 (expected 12.3%, 11.8% in previous press); Core PCE quarter-over-quarter second estimate (6.1% expected, 6.1% in previous press); Kansas City Fed Manufacturing Activity Index, August (30 in print)
Friday: Advanced Commodity Trading, July ($ -90.9 billion expected, $ -91.2 billion in June); Wholesale, month-on-month, preliminary July (expected 1.0%, 1.1% in June); Personal income, July (expected 0.2%, 0.1% in June); Personal expenses, July (expected 0.4%, 1.0% in June); PCE core deflator, month-on-month, July (expected 0.3%, 0.4% in June); PCE core deflator, year-on-year, July (3.6% expected, 3.5% in June); University of Michigan Sentiment, August finale (expected 71.0, 70.2 in previous print)
Monday: No notable reports are scheduled for release
Friday: No notable reports are scheduled for release
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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