MONDAY SCOUTING REPORT
August is a popular month for taking a vacation.
Even the global central bankers who’ll flock to this week’s Kansas City Fed symposium in Jackson Hole, Wyoming are essentially on a vacation.
Legend has it that the Jackson Hole conference’s origins were tied to former Fed Chairman Paul Volcker’s love for fly-fishing.
“The Jackson Hole conference runs from Thursday night to Saturday,” noted the economics team at Bank of America Merrill Lynch. “While Chairman Bernanke is not speaking at the conference there will be some interesting academic papers”
“The data docket in the week ahead is light, but there are two main events worth noting: the minutes of the July FOMC meeting (Wednesday) and initial jobless claims for the August employment survey week (Thursday),” said Deutsche Bank’s Joe LaVorgna.
- The FOMC Minutes: On Wednesday, we get the minutes from the July 30-31 Federal Open Market Committee meeting. “At the time of the July Fed meeting we suggested the minutes could be more important than the actual meeting statement, because the former would shed greater insight regarding the breadth and degree of comfort among Committee members toward a September QE taper,” said LaVorgna. “Recent public comments from various policymakers suggest that even notable doves, such as Bullard, Lockhart and Evans, are comfortable with — but not yet committed to — the taper commencing at the September meeting. The lack of conviction for September largely stems from lingering uncertainty over the underlying health of the labour market and the broader economy.”
What To Look For In The Minutes: “Tempering any bearish discussion of tapering in the minutes would be any signals that the Committee is prepared to push out its forward guidance for rate hikes,” said Credit Suisse’s Neal Soss. “For example, there may have been discussion in late July about possibly lowering the Committee’s 6.5% threshold for the unemployment rate at some point in the future.
“In analysing the minutes, we will be paying particular attention to the distinction between the 19 FOMC “participants” and the Committee’s 12 voting “members.” Also, the choice of quasi-numerical modifiers such as “few”, “several”, “many”, etc. will be an important focus.”
- Existing Home Sales (Wednesday): Economists estimate a existing home sales in July climbed to a pace of 5.13 million on an annualized basis. “Existing home sales are likely to increase a modest 0.4% mum in July to 5.1 million saar,” said Bank of America Merrill Lynch. “Housing data tends to be noisy, so we like to look at the 3-month moving average growth rate, which is trending at 1.7%. Coupling this with the fact that existing home sales dropped 1.2% mum last month, we should see growth in closed contracts this month. Also, inventory has been expanding since the beginning of the year — months supply was 5.2 in June, up from 4.3 in January — which is supportive of greater sales given that it has been noted as a constraint in recent history.”
- Federal Open Market Committee Minutes (Wednesday): The minutes will be released at 2:00 p.m. ET.
- Initial Jobless Claims (Thursday): Economists estimate weekly claims climbed to 329,000. “Last week we learned that initial jobless claims for the first full week of August fell to 320k — thereby pulling the four-week moving average 4k lower to 332k,” said LaVorgna. “Both initial claims and the 4-week average are now at pre-recession levels, and are therefore consistent with a faster pace of payroll gains than what we have seen over the past three months (+175k). Since 1990, 320k on claims has been consistent with approximately +230k on payrolls, the level of the 4-week is consistent with +200k.”
- Markit U.S. PMI Flash (Thursday): Economists estimate the preliminary U.S. manufacturing PMI ticked up to 53.5 from 53.2 in July.
- Kansas City Fed Survey (Thursday): Economists estimate the regional Fed activity index fell to 5 in August from 6 in July. Any number above 0 signals expansion.
- New Home Sales (Friday): Economists estimate new home sales in July fell to an annualized pace of 487,000, down from 497,000 in June. “This would follow three months of consecutive gains,” said BAML. “Mortgage purchase applications fell over the month, indicating a decline in signed contracts. Homebuilder reports have been mixed — the NAHB homebuilder sentiment index has been positive but reports from individual builders have been more mixed. While we expect a dip in July, we think the trend over the rest of the year for new home sales will be higher, albeit in a choppy fashion.”
The S&P 500 fell last week, closing Friday at 1,655. Just two weeks ago, it closed at an all-time high of 1,709.
“Let’s play contrarian, big time, and posit that the selloff over the past few days is meaningful, for it signals a return to something capital markets thought was dead: fundamentals,” said ConvergEx Group’s Nick Colas.
“How many times have you heard over the last few years that U.S. stocks were the best show in town because the Federal Reserve was pushing liquidity into the system? OK — that overarching narrative is coming to an end with talk of ‘Tapering’ in September. Yes, I know they Fed isn’t abandoning the financial system just yet. But like so many Americans, their job in supporting capital markets will be shifting to a part-time engagement. “
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