What to know this week

Traders this week are poised to focus closely on the virtual appearance of Federal Reserve policymakers at the bank’s annual Jackson Hole Economic Policy Symposium.

The event, which takes place Thursday through Saturday this week, is expected to serve as a forum for further discussions on the Fed’s policymakers’ plans to announce and implement a change in the central bank’s monetary policy stance. . Namely, investors have been watching closely for months to see when officials start cutting back on their purchases of treasury and mortgage securities, which have been going at a rate of $ 120 billion per month for more than a year for more than a year. the pandemic.

This asset purchase program had been a major policy underlying US stock markets this year, providing liquidity throughout the virus-induced economic crisis. But as the economy progresses in the recovery, discussions by Fed officials about taking the reins of this program have started to escalate.

Last week, Federal Reserve officials signaled that the announcement to start the cut was approaching. According to the minutes of the Federal Reserve’s July meeting, most monetary policy makers believed the economy would have made enough progress towards recovery to warrant a cut.

“Most participants noted that, provided the economy evolves broadly as they expected, they felt it might be appropriate to start reducing the pace of asset purchases this year as they considered the The Committee’s “substantial progress” criterion as met with respect to the price stability target and also close to being met against the maximum employment target, “according to the FOMC report.

But as many experts have noted, the central bank still has a slew of meetings in 2021 to serve as a platform to discuss or announce the cut. As a result, Jackson Hole this week could cause little ripple, with policymakers like Federal Reserve Chairman Jerome Powell sticking to their previously wired language of waiting to see further improvements in the job market. before intensifying discussions on a further reduction.

“Jackson Hole next week is definitely a target for when we could hear some real corporate language on the typing. I don’t really expect much from Jackson Hole,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, at Yahoo Finance last week. “We’re more in the camp than we’re probably starting to hear something around the November meeting. Maybe they’re as quick as December to start implementing the cone. starting to see a slow decline, probably in the order of $ 15 billion per month. “

“They are still very, very accommodating. They are slightly less accommodating,” he added. “But it’s a bit of semantics at this point. Typing is very well documented and well known. We know it happens. It’s just a matter of timing and really shouldn’t come as a surprise to many investors.”

Federal Reserve Board Chairman Jerome Powell testifies before the Senate Hearing on Banking, Housing and Urban Affairs to consider the Semi-Annual Monetary Policy Report to Congress, July 15, 2021, on Capitol Hill. (AP Photo / Jose Luis Magana, file)

As for the ultimate impact of tapering on the market, if the outcome looks like the response of the latest tapering announcement in 2023, investors could be bracing for a momentary episode of volatility and some sector rotation below the surface. .

“In 2013, Fed Chairman Bernanke’s comments on tapering catalyzed a 40bp five-day backup in 10-year yields and a 5% drop in the S&P 500,” said David Kostin, chief strategist of US shares of Goldman Sachs, in a note. Last week. “The initial taper tantrum signal ultimately proved fleeting over the course of a year with extremely strong returns for stocks.”

“The S&P 500 rebounded 5% in the two months or so after the crisis, driven higher by the materials, consumer discretionary and health care sectors,” he added. “In December, the S&P 500 had posted an annual return of 32%. As the Fed reiterated its commitment to an accommodative policy, growth outperformed value and cyclical stocks outperformed defensives.”

Personal expenses, income

New economic data on consumer spending and incomes will also be on the agenda later this week, with reports on the two measures due on Friday.

Consensus economists expect personal spending to slow to just 0.4% per month in July, decelerating from the 1.0% increase in June.

As recently as last week, Commerce Department data showed retail sales fell more than expected in July, dropping 1.1%. The print indicated greater moderation in spending as the impact of stimulus checks earlier this year eased further and lowered the bar for monthly personal spending data from the Bureau of Economic Analysis.

Other data also highlighted the slowdown in consumer spending, especially given the recent release of the Delta variant from mid-summer.

“Although spending on services started strong in July, boosted by the holidays, our aggregate BAC credit and debit card data suggests that spending on services, particularly on travel and leisure, has slowed significantly in the region. second half of the month, potentially due to growing concerns from Delta, ”Bank of America economist Michelle Meyer wrote in a note Friday.

Friday’s consumer spending report will also contain data on personal income, which is also expected to have increased only slightly on a monthly basis. Economists are forecasting an increase of 0.1% in July, which would match the pace of the previous month.

Even with the income deceleration, however, the personal savings rate may have risen, as an early round of child tax credit payments helped offset slowing income growth, some economists noted. .

“The advance payments of the child tax credit paid this month have resulted in a decrease in the tax burden and therefore in a 1% increase in disposable income from one month to the next, consequently resulting in a savings rate increased to 10.0% from 9.4% in June, ”Meyer predicted.

Economic calendar

  • On Monday: Chicago Fed National Activity Index, July (0.09 in June); Markit US Manufacturing PMI, August preliminary (62.8 expected, 63.4 in July); Markit US Services PMI, August preliminary (59.0 expected, 59.9 in July); Markit US Composite PMI, August preliminary (59.9 in July); Existing home sales, month on month, July (-0.3% expected, 1.4% in June)

  • Tuesday: Richmond Fed manufacturing index, August (25 expected, 27 in July); New home sales, month on month, July (3.6% expected, -6.6% in June)

  • Wednesday: MBA mortgage applications, week ended August 20 (-3.9% over the previous week); Durable goods orders, preliminary for July (-0.2% expected, 0.9% in June); Orders for non-defense capital goods excluding aircraft, preliminary for July (0.5% expected, 0.7% in June); Deliveries of non-defense capital goods excluding aircraft, preliminary for July (0.6% in June)

  • Thusday: Initial jobless claims, week ended August 21 (352,000 expected, 348,000 in the previous week); Continuing claims, week ended August 14 ($ 2.780 million expected, $ 2.820 million in the previous week); Quarter-over-quarter annualized GDP, second estimate for second quarter (6.6% expected, 6.5% in previous print); Personal consumption, second estimate for the second quarter (12.3% expected, 11.8% in the previous impression); Core PCE second quarter second estimate quarter over quarter (6.1% expected, 6.1% in previous print); Kansas City Fed Manufacturing Activity Index, August (30 in previous version)

  • Friday: Trade balance in advanced goods, July (-90.9 billion dollars expected, -91.2 billion dollars in June); July preliminary month-to-month wholesalers inventories (1.0% expected, 1.1% in June); Personal income, July (0.2% expected, 0.1% in June); Personal expenses, July (0.4% expected, 1.0% in June); PCE underlying deflator, mo, July (0.3% expected, 0.4% in June); Underlying PCE deflator, year-on-year, July (3.6% expected, 3.5% in June); Sentiment from the University of Michigan, August final (71.0 expected, 70.2 in previous print)

Earnings calendar

  • On Monday: No significant report is planned for publication.

  • Tuesday: Advance Auto Parts (AAP) before the market opens; Intuit (INTU) after market close

  • Wednesday: Best Buy (BBY) before the market opens; Salesforce (CRM), Autodesk (ADSK), Ulta Beauty (ULTA) after market close

  • Thusday: The JM Smucker Co. (SJM), Dollar General (DG), Dollar Tree (DLTR) prior to market opening; The Gap (GPS), HP Inc. (HPQ) After Market Close

  • Friday: No significant report is planned for publication.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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