Weekly Economic Indicators: Cautious Markets, Hard Data

The schedule of economic releases for the week of June 24th is as follows:

  • Monday:  Chicago Fed National Activity Index, Dallas Fed Manufacturing Survey, and Richard Fisher speaks
  • Tuesday:  ICSC-Goldman Store Sales, Durable Goods Orders, FHFA House Price Index, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, State Street Investor Confidence Index
  • Wednesday:  MBA Purchase Applications, GDP, and Narayana Kocherlakota speaks
  • Thursday:  Weekly Jobless Claims, Personal Income and Outlays, Pending Home Sales Index, Kansas City Fed Manufacturing Index, Fed Balance Sheet, Jerome Powell and Dennis Lockhart speaks
  • Friday:  Chicago PMI, Consumer Sentiment, Jeffrey Lacker, Sandra Pianalto, and d John Williams speaks

I spoke with Arthur Cashin, Managing Director of Floor Operations at UBS Financial Services, and frequent CNBC commentator, about what he will be watching most closely next week. Next week’s economic calendar is fully loaded and Cashin will focus on a few important pieces of economic data, including the overall market, housing related data, jobless claims, Federal Reserve (“Fed”) speakers, and consumer sentiment.

Overall Market

According to Cashin, historically, the equity market usually responds to the second expiration of quadruple witching and the FOMC meeting with a correction. He is seeing the same kind of event here, where the equity markets are selling off following the FOMC meeting and the quadruple witching today. He expects investors to be treading cautiously for the rest of the summer, until the next FOMC meeting in Jackson Hole, WY as financial markets are expected to remain choppy.  The Federal Reserve said it will keep its bond-buying program stable at a rate of $85 billion a month, as the risk to the economy has decreased. The central bank will gradually increase the Fed funds rate, but it will be some time before interest rates are hiked up. Any decision to raise interest rates will be in the future. Fed policy will be adjustable to economic conditions.  Chairman Ben Bernanke said the main headwind to the economy is fiscal policy. The bond-buying program could be reduced later this year, depending on economic conditions. The central bank is expected to taper its bond purchase by the end of year and end quantitative easing by 2014. The Chairman did not provide any insights as to what his personal plans are. He also cautioned that the Chinese data is starting to become worrisome again.

Housing Data

Chairman Ben Bernanke said the Fed is expecting housing prices to increase, which is starting to complicate things, as that signals interest rates have to increase.  Cashin says the story about the information from the housing ETF’s is that the data is not carrying through. This week, the economic calendar is loaded with housing related data, such as FHFA House Price Index, S&P Case-Shiller HPI, New Home Sales, MBA purchase applications and pending home sales index. There could be some cross currents next week as the refinancing activity might go up, but home sales might decrease as the rates tick up.  Cashin will also be looking at the MBA purchase applications-this could be disruptive to financial markets.

Jobless claims and Fed speakers

Employment is one of the key pieces of economic data the Fed will look at to decide when it will taper its stimulus program. Market participants might expect claims to creep up as the jobs data is viewed as artificially inflated. Last week, the jobless claims data came in higher than expected as more Americans filed for unemployment benefits. There are a number of Fed staff on the speaking circuit next week. Cashin believes Fed watchers will be looking for hints as to how broad the dissenters were at the FOMC meeting last week. Also, they will focus on what the view of voting members was on the effectiveness of quantitative easing, and how many members become hawks? Richard Fisher, President of the Dallas Fed at one point was the only hawk. Also, Cashin would like to know if Janet Yellen, Vice Chairman of the Fed was in agreement with Chairman Ben Bernanke. Yellen is viewed as the possible successor to the Chairman.

Bond Market and Fed Auction

The bond market will be in focus next week and Cashin cautioned to pay attention to the 10 year yield as it is on the rise. CDO’s are beginning to move up again. Cashin said for those who don’t remember, there was a company named Lehman Brothers, which declared bankruptcy after leveraging itself too much with CDO’s. Also, the Treasury Department is scheduled to auction off 2-year, 5-year, and 7-year treasury securities next week and investors will be looking for an uptick in rates.