Investors parsed through a slew of economic data last week that could provide arguments for analysts on both sides of the fence regarding the Federal Reserve slowing their monetary stimulus efforts. The consensus is that the Fed is going to scale back its purchases of Treasuries and mortgage-backed securities from $85 billion each month to between $60 billion and $65 billion with many economists believing that tapering will begin next month. Information last week showed that inflation remains muted and the labor market improved, but data on manufacturing was anything but spectacular.
Adding to the economic data mix were bellwether companies like Wal-Mart (WMT) and Cisco Systems (CSCO) offering downbeat guidance that is keeping investors wondering where the economy could go if the Fed pulls some of its support. On that point, when the Federal Open Market Committee speaks on Wednesday, people are going to listen, and listen closely.
Other key economic data with market moving potential coming this week will include:
Existing Home Sales for July – In June, existing home sales pulled back 1.2 percent to an annualized rate of 5.08 million, according to the National Association of Realtors. The decline followed 3-1/2 year highs that were hit in May at an annualized rate of 5.14 million. Compared to June 2012, sales were ahead by 15.2 percent. Median prices continued to rise, though, climbing 5.5 percent to $214,200. Inventories rose again, relieving some pressures on short supply concerns as more people are starting to see the improved prices as an opportunity to sell. Supply sat at 5.2 months in June, compared to 5.0 months in May. For July, economists are expecting existing home sales to rise to about 5.18 million.
Federal Open Market Committee Minutes – The FOMC delivers the minutes from its latest meeting at a three-week lag. Clearly, the most important information that the markets will be looking for is word on how much and when the Fed will begin to scale-back its efforts of buying $45 billion in U.S. Treasuries and $40 billion in mortgage-backed securities each month. It is expected that the Fed will officially announce tapering at its meeting on September 18 – 19, but investors will be looking for hints in the minutes coming this week. Although Fed Chairman Ben Bernanke spoke of tapering in June (much to the markets dismay), commentary has been relatively dovish since by Big Ben, frequently saying that tapering is based upon the health of the economy and that the central bank will make any adjustments necessary to support the labor market and a 2.0-percent inflation target, the main to charges of the Fed. Nothing definitive will likely come from the minutes of the recent FOMC meeting, but economists will be looking for more hawkish talk to strengthen the idea that tapering is coming sooner, rather than later.
Initial Jobless Claims for the Week Ended August 17 – For the week ended August 10, the Labor Department said that first-time filings for jobless benefits dropped by 15,000 to 320,000, blowing past expectations and representing the lowest number of weekly claims since October 2007. The four-week moving average, a less volatile measure of job trends because it irons-out weekly fluctuations, declined by 4,000 to 332,000. Generally speaking, economists regard a weekly claims figure of 350,000 as representative of a modestly growing labor market. Economists aren’t expected to see a new record low hit last week, pegging new claims to rise to 329,000.
New Home Sales for July – New homes sales have been picking up the pace since last October, with a report last month from the Commerce Department showing that sales in June reached an annual rate of 497,000, marking the highest level since May 2008. Inventories remained tight with only a 3.9-month supply, well shy of the six-month worth of inventory that is regarded as normal. The median sale price for a new home in June was $249,700, up 7.4 percent from a year earlier. Economists are expecting the pace to cool a little in July, calling for the annualized rate to be 486,000.