Data releases this week are light but on Tuesday markets will hear biannual testimony on monetary policy from Ben Bernanke, chairman of the Federal Reserve. Bernanke will speak before the House on Tuesday and repeats his testimony to the Senate on Wednesday, but each day offers a new Q&A.
Analysts aren’t expecting the chairman’s speech to be groundbreaking, but the Q&A could offer commentary on the central bank’s policy of purchasing treasury notes, plus some elucidation on the Fed’s exit strategy from the massive policy response to the financial crisis.
“Expect a robust defense of Fed policy from Mr. Bernanke, but don’t expect him even to hint that the Fed is thinking about reversing any of its measures,” said Ian Shepherdson, chief US economist from High Frequency Economics.
Investor sentiment is positive, though cautious, after a week that saw markets gain over 7%, a big jump following a two-week slump. The bounce was driven more by earnings than macroeconomic data, and this week could be similar considering the lack of market-shaking data.
Q2 earnings expected this week include: American Express, Boeing, Caterpillar, and Merck & Co. Markets will also see earnings from Amazon, Apple, Coca-Cola, eBay, PepsiCo. and Starbucks.
Key Releases This Week:
10:00 ― Leading Indicators is a composite index of ten data points that investors look at to predict turning points in the economy. In April and May the composite ended many months of decline when it shot up 1.1% and 1.2%, respectively, and in June ― the 18th month of recession ― investors look for a 0.5% uptick. All ten indicators are expected to be improving on a month to month basis.
“Further steepening of the yield curve is providing the biggest boost to the forward looking measure, with significant contributions also coming from a surge in housing permits and rising stock prices,” said analysts from IHS Global Insight, who look for a 0.9% gain. “A slight slip in the University of Michigan Consumer Sentiment Index will subtract a negligible amount from the headline reading,” they added.
The research team at BBVA adds: “Even though two of the index’s previous drivers of growth, the S&P 500 and consumer expectations, have dropped in June, the decline in
initial jobless claims and the rise in manufacturers new orders and building permits will help to offset those components.”
1:30 ― A day ahead of Bernanke’s speech, Atlanta Fed President Dennis Lockhart gives his own speech from Nashville, which markets could look at in anticipation of the Chairman’s comments.
10:00 ― Ben Bernanke delivers the biannual address on monetary policy to the House. The central bank chairman is likely to reiterate that the economy is sprouting green shoots, but recent Fed speeches have indicated that FOMC officials are cautious about tightening policy, which could reverse positive trends in the economy.
“We expect the tone of his prepared remarks to broadly echo the forecast changes made by the FOMC — cautious optimism, at best,” said economists from Deutsche Bank in a client note. “The 2009 central tendency on real GDP, inflation and unemployment were all lifted, and the Fed is looking for only a modest recovery in growth next year.”
10:00 ― No new testimony is expected Ben Bernanke when he speaks before the Senate, but another Q&A session will draw attention to the event.
8:30 ― Most analysts are warning that Jobless Claims are pretty unreliable due to seasonal adjustment factors, but it has still been welcoming that initial filings have been well below 600k for the past two weeks. Analysts look for filings to edge up from 522k to 560k in the week ending July 18.
HFE’s Ian Shepherdson argues notes: “After two very steep drops we expect claims to rebound substantially to about 575k from 522k. The seasonal adjustment has ‘expected’ much bigger auto layoffs during the annual retooling shutdowns, partly because GM and Chrysler laid off thousands of people earlier in the spring as they slid into bankruptcy.”
Eyes will also focus on the Continuing Claims figure, which saw its biggest one-week nosedive ever in the week ending July 4. That too was probably a result of seasonal factors, but markets will want to see if the trend continues.
9:30 ― Daniel Tarullo, Governor of the Fed, Sheila Bair, chairwoman of the FDIC, and Mary Schapiro, chairwoman of the SEC, testify on regulatory restructuring before the Senate Banking Committee in DC.
10:00 ― The major real estate release this week is Existing Home Sales, which are expected to inch up to an annual rate 4.850 million sales in June. In May the index gained 2.4% to 4.770 million, with the level of inventory overhang dropping 5 months to 9.6 months.
Foreclosure-related sales continue to play a major role in sales, which puts a mixed spin on the increase in sales, but any drop in inventories in an asset to the economy.
Going against the median forecast, analysts at IHS Global Insight said sales will fall further in June, and into the summer. “Distressed sales and improved affordability won the tug of war in April and May. But over the past seven months, the battle has been a stalemate, as sales have hardly changed. For June, we project a small decline in sales. Going forward, we expect sales to slide further as the unemployment rate rises.”
Friday ― The week ends with an update on Consumer Sentiment. Preliminary results from Reuters & the University of Michigan indicated that sentiment fell substantially in July, but final results could be tamer given that oil prices have come down this month and the stock market rebounded last week.
Mid-July results had sentiment falling more than 6 points to 64.6. Forecasters are putting the final result up, but only slightly, at 65.0.