The market is justifiably double minded about the course of Fed
policy in the coming days. Wednesday's minutes of the Fed's last
meeting, which took place before a number of key economic reports
showed renewed strength, clearly show bias towards more monetary
easing. The negative drag from global economic slowdown, as
highlighted by soft manufacturing readings from China and the
Euro-zone today, further confirms that course of action. But the
recent improvement in U.S. economic indicators could mean that the
central bank could hold off on doing a full fledged bond purchase
program. The focus will now shift to the Fed's Jackson Hole huddle
later this month, pronouncements from which will be closely watched
for signs of the central bank's next course of action.
Today's flash purchasing managers index (PMI) readings for China
and the Euro-zone provide further confirmation of the global
economic slowdown. The weakness in Germany is particularly
worrisome as it could potentially reduce its ability and
willingness to do the heavy lifting needed to stabilize the
region's faltering financial health. This soft international
backdrop has contributed to expectations that central banks,
including the U.S. Fed, would come out with more accommodative
policies.
Minutes of the Fed's last meeting confirm that the central bank
was thinking along those lines as well. But that meeting on July
31/August 1 was followed by a few stronger looking economic data
points, with the July non-farm payroll and Retail Sales readings
reversing the preceding the three months of negative trend. This
morning's not-so-bad Jobless Claims data is also along the same
lines. This could mean that the Fed does not need to rush a new
bond purchase program to juice up economic growth. And this lack of
clarity on the course of Fed policy in the coming days will likely
be the key hurdle for stocks to make any decisive move in either
direction.
On the earnings front,
Big Lots
(
BIG
) came short of expectations and guided lower, while results from
Hormel Foods
(
HRL
) were on the positive side. We will have results from
Autodesk
(
ADSK
) and
Salesforce.com
(
CRM
) after the close today.
New Home Sales
are scheduled for release today at 10:00 AM EST. In June, New Home
Sales decreased by 8.4% to 350,000 from the revised May rate of
382,000.
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