Talk about mixed signals. Yesterday, equity markets were quite strong, albeit in light trading. The market was led by the Financial sector after Core PCE came in at an unchanged 1.6% y/y, which beat expectations. Not enough, nor too little inflation to change any minds on the Committee. Treasuries rallied throughout the day as well. Does that mean that equity traders expect an increase in the Fed Funds Rate on 21 September, while bond traders do not. Obviously that would be ridiculous, but the probabilities of an increase at that meeting were at 44% yesterday afternoon, which shows just how split opinion is on this.
Federal Reserve Bank Vice Chair Stanley Fischer will be making a TV/Radio appearance this morning. We all know how he rattled a few cages on Friday, when he mentioned the possibility of two rate hikes this year. I would expect some more cage rattling today. Stanley Fischer is a careful man. That said, I think that the mere mentioning of two hike was simply to make one hike seem not so bad. Maybe, he’s playing the bad cop in this scenario. No rational economist would consider two hikes in the Fed Funds rate by year’s end unless there was an unforeseen scarcity event that demanded such a move.
The US Dollar is stronger again today versus the Yen, the Pound, and the Euro. I am sure that we’ll see a great deal more of this as we move into the season of September policy meetings for all of these central banks. This will wreak havoc on Energy, Transportation, Mining, and Material names, not to mention the underlying commodities. The ECB will bat lead-off on 8 Sept, with the Bank of England set to meet one week later, on the 15th. I’m sure Mario Draghi wishes those two were reversed. The Bank of Japan, and the FOMC will both hold two day meetings that end on the 21st. The possibility of explosive market reactions to divergent policy decisions on that day is at this time enormous, and may be reason enough for the Fed to hold their fire. This won’t be boring.
08:55 – Redbook (Weekly): Last Week 0.2% y/y. This weekly report on the retail space is hitting a rough patch of late. After meandering along all year at an approximate 0.5% y/y clip, this item has hit the tape at 0.2% y/y for two straight weeks. On top of that, we have seen growth dip below the once hallowed 0.5% mark in four of the last six weeks. This is the tail end of the “Back to School” season, and the last thing retailers need to see here is a flat print, or even negative number.
09:00 – Case-Shiller HPI (June): Expecting 5.2%, May 5.2% y/y. This item is the US economy’s most highly focused upon Home Price Index. We’ve seen very consistent year over year growth in this space for about a year and a half, with every month since March 2015 printing between 4.9% and 5.7%. June should be no different. Unfortunately we are expecting to see a number toward the lower end of that tight range. Almost everyone is either at 5.1% or 5.2% on this one today.
10:00 – Consumer Confidence (August): Expecting 97.1, July 97.3. Most economists expect to see a slight drop in this survey to 97.1, but consensus range spans from 94.5 to 98.5. If the similar University of Michigan’s Consumer Sentiment is any guide, this item will hit the tape toward the lower end of that range. Keep in mind that July Retail Sales were awful, while this data-point beat expectations for July. It will be interesting to see if there is something of a lagging effect in this space. Equity markets often do react to consumer surveys.
Tuesday’s Earnings Highlights
Before the Open: ANF (-.21), DSW (.30)
After the Close: HRB (-.54)