There are a
number of key economic releases this week, but the major focus this week is
Bernanke testifying in the House and Senate on the economy, employment and
inflation. Likely he will field a lot of questions from politicians about what
the Fed intends to do with its QEs and more grilling on the state of the
economy and unemployment that refuses to subside. He goes before the House
Financial Services Committee on Wednesday and then to the Senate’s Banking
Committee on Thursday.
At the moment,
markets continue to lean towards the Fed beginning to taper as soon as September,
but Bernanke is keeping markets on edge by changing is tune from one speech to
another. He has managed to
twist interest rate markets into a tight knot with his recent comments,
on June 19th saying emphatically that the Fed was preparing to begin removing
the Fed’s support of the bond markets by slowing its monthly purchases,
that sent interest rates spiking higher, then in a speech early this
month retracting a little after he was surprised at the swift increase in
mortgage rates. The housing sector being the strongest sector in the
economy, mortgage rates increased 5 basis points; the reaction to his remarks
early this month stabilized mortgage rates in a narrow range. His testimony
this week is critical, he will be grilled hard by members of the
committees on the economic outlook and the Fed’s intentions.
Economic data
this week includes June retail sales on Monday, June CPI, June reports on
industrial production and factory use, and June housing starts and permits. We expect markets will trade in narrow ranges
early this week ahead of Bernanke testimonies. It isn’t wise now to anticipate
that interest rates will decline much. Maybe Bernanke can swing the outlook to
a more positive outlook, but if that were to occur he would have to imply the
Fed will not begin tapering until next year.
A lot of focus
these days on China and
the slowdown that continues, but this morning their GDP expanded 7.5% in the second
quarter, its economy expanded 7.7% in Q1. China is slowing but obviously still
a lot better than here in the US. The GDP report pushed Europe’s stock markets
better. U.K. home sellers raised asking prices for a seventh month to a record
in July, according to Rightmove Plc, which said values will increase twice as
much as previously forecast this year.
There is an increasing number of bullish
comments that rates may decline a little more from present levels; I am not
arguing against that thought, there is some logic behind it but until the
market itself demonstrates it will hold to out bearish outlook based on price action,
not comments.
Read the Updated Real Estate Report at:
- Michael Corboy
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