Salespersons and financial professionals work on the floor of the New York Stock Exchange (NYSE) at the opening bell on August 19, 2019 in New York Conurbation.
Drew Angerer | Getty Images
Developments in U.S.-Chinese trade talks and the comments from a host of Fed speakers could be leading for markets in the week ahead, as stocks struggle to regain highs.
The Fed in the past week cut interest rates for the second linger in two months, but the latest forecasts of Fed officials showed just how divided they are on the need for future rate cuts. Five lust after deeper cuts, five didn’t want any cuts and another seven were happy with the Fed’s action.
“The vend seems like it’s pretty jumpy based on what the say. i think it would flip back and forth depending on how the headlines go about a find out,” said Tom Simons, money market economist at Jefferies. Simons said the focus will also be on the Fed’s operations in the short-term readying market, after turbulence in the overnight market in the past week temporarily sent some overnight rates cuttingly higher.
There are nearly a dozen Fed speakers on the calendar in the coming week, but Fed Chairman Jerome Powell is not scheduled to be significant mention.
Trade developments could continue to cause volatility in markets. Reports Friday that Chinese agriculture formals canceled visits to farms in Montana and Nebraska sent stocks lower, for fear it signaled that talks were not making make headway.
Stocks in the past week were lower, with the S&P off about 0.5% to 2,992. The index had been around 1% away from its all-time high for a few weeks.
“Tech that has been out of movement and is acting faulty. it’s now turning into a headwind, and that could cause a problem for the bulls,” said Scott Redler, companion with T3Live.com. “I haven’t seen so many mixed signals in the market in quite some time.”
“It’s hard for the deal in to make new highs without tech. At best, it’s concerning when you see key names, like Amazon and Netflix, not just imperfection to lead but faltering,” he said. Netflix was down more than 8% for the week, and Amazon was off 2.6%.
Redler said it was a issue that shares of market leader Microsoft gave up its initial gains and turned negative, soon after it heralded a buyback and raised its dividend. “Strength was sold instead of embraced,” he said. “That was good news. What are they prevalent to do when bad news happens?”
Following the attacks on Saudi Aramco last week, the United Nations General Congress in New York and meetings around it take on more importance for markets. U.S. and Saudi Arabian officials have said Iran was behind the revile, which knocked a significant amount of Saudi oil production off line. Iran has denied involvement, and Houthi rebels in Yemen eat claimed responsibility.
Iran’ President Hassan Rouhani has been given a visa to travel to New York for the UN. Before the seizure on Saudi Arabia last week, President Donald Trump had suggested he would speak to Rouhani but there have all the hallmarks little chance of that now. Oil have been highly volatile, with Brent crude futures up 7% since the start as Saudi Arabia sought to assure markets that it would be able to bring its operations back on line.
There is some monetary data that will also be important to markets. There is manufacturing PMI Monday, important after ISM manufacturing statistics showed a contraction in August. Durable goods will also be important on Friday, as will personal consumption materials, which includes the Fed’s preferred inflation indicator, the core PCE deflator.
“What Powell said in his remarks was inflation was under his target,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “But even the core PCE deflator is contemplated to be 1.8, a new high for the year.” The Fed’s target inflation rate is 2%, and other inflation measures have been at bottom that, including core CPI.
The Fed will also be in focus after problems in the overnight funding market, used by banks in essential of short term cash. Rates spiked for repo, or repurchase agreements, in a chaotic two-day period Monday and Tuesday. The Fed’s aim fed funds rate also moved above its target range, in an unusual move.
The market has since calmed after the Fed carried out unbar market operations to add liquidity to the market. On Friday, it announced three 14-day operations involving $30 billion as sedately as continued overnight operations of at least $75 billion each.
“I think the Fed has absolute control over short in relation to rates. It was caught sleeping at the wheel,” said Chandler.
Powell said the Fed would monitor the market and take whatever effect is needed. The market is considered the basic plumbing for financial markets, where banks who have a short-term need for bills come to fund themselves. The odd spike in rates was viewed as the result of a cash crunch, not a credit crisis.
Bond demand pros have been concerned that the Fed would again see strains in the market at month end, when there’s more motion in the overnight funding market.
“It gets you further past quarter end,” said Jon Hill, rate strategist at BMO. “A 14-day thrusts them further into October. I think nerves will have calmed. The fact you’ll see fed funds print incontestably in the range will reassert confidence. These operations will serve as a reminder that the Fed can have absolute contain the front end if and when it wants to. This is a good thing.”
The funds rate was at 1.90% Thursday, within the target take to task range of 1.75% to 2%.
“They’re removing any doubt of their ability to take control of fed funds in the modern framework. They honest announced $165 billion over quarter-end , and we may go bigger. They haven’t done a repo injection in 10 years,” asserted Hill.
Week ahead calendar
Monday
9:30 a.m. New York Fed President John Williams at N.Y. Fed conference on Treasury market
9:45 a.m. Mass production PMI
9:45 a.m. Services PMI
11:30 a.m. San Francisco Fed President Mary Daly
1:00 p.m. St. Louis Fed President James Bullard
Tuesday
9:00 a.m. S&P/Case-Shiller home charges
9:00 a.m. FHFA home prices
10:00 a.m. Consumer confidence
1:00 p.m. $40 billion 2-year note auction
Wednesday
8:00 a.m. Chicago Fed President Charles Evans
10:00 a.m. Cleveland Fed President Esther George
10:00 a.m. New dwelling-place sales
11:30 a.m. $18 billion 2-year floating rate notes
1:00 p.m. $41 billion 5-year note auction
7:00 p.m. Dallas Fed President Robert Kaplan
Thursday
8:30 a.m. weekly applications
8:30 a.m. Real GDP Q2 (third)
8:30 a.m. Advance economic indicators
9:30 a.m. Dallas Fed’s Kaplan
10:00 a.m. St. Louis Fed’s Bullard
10:00 a.m. Pending home sales
11:45 a.m. Fed Degradation Chairman Richard Clarida
11:45 a.m. San Francisco Fed’s Daly
1:00 p.m. $32 billion 7-year note auction
2:00 p.m. Minneapolis Fed President Neel Kashkari
4:30 p.m. Richmond Fed President Tom Barkin
Friday
8:30 a.m. Fed Wickedness Chairman Randal Quarles
8:30 a.m. Durable goods
8:30 a.m. Personal income/spending
10:00 a.m. Consumer sentiment
12:00 p.m. Philadelphia Fed President Patrick Harker