US equities had their biggest drop since August 2013 last week, dragging the S&P 500 down from a record high, amid concern that improving economic data will prompt the Federal Reserve to alter its monetary stimulus. Investors continued to weigh the prospects of reduced economic support from the Federal Reserve which also saw most global market indexes closing in the red as profit taking was the order of the week.
It all boils down to this week as the highly anticipated Fed decision regarding its bond purchases will be announced. Will the Fed spoil the visit to the Hamptons for the big boys?
The FOMC convenes on Tuesday for its two-day policy-setting meeting and is scheduled to announce the verdict on tapering on Wednesday. The monthly $85 billion bond-buying stimulus has amassed a significant amount of debt for the Fed, adding more than $3 trillion to its balance sheet since the crisis in 2008. The monetary spending spree has resulted in a rapid ascension of stocks, the housing market, and consumer spending, leading to a 5 year bull market. However, the uninterrupted flow of easy and cheap monetary cocaine to which the market is hooked is expected to end soon as the economy improves. With speculation that the Fed may decide to reduce the dosage before the year end, many economists fear that the market's response will likely be volatile and complete with the jitters and sweats.
Following are Sentiment charts for S&P 500, DOW Jones, and NASDAQ.
Following is an economic overview for the week December 16 - December 20, 2013.
(All times EST)
Monday, December 16
09:05 — US Industrial Production :
US industrial production recorded its largest increase in a year in November (1.1% vs. expectations of a 0.5% increase) as mining and utilities output rebounded strongly.
Tuesday, December 17
04:30 — Great Britain CPI:
In October 2013, GB CPI fell to an annual rate of 2.2%. If inflation rate continues its downward trajectory, it may influence Bank of England's monetary policy.
05:00 — Euro CPI:
Euro area annual inflation was recorded at 0.7% in October 2013, down from 1.1% in September. If CPI declines further in November, it may influence the ECB's decision towards its monetary policy.
08:30 — Canada Manufacturing Sales (m/m):
The upcoming report will pertain to manufacturing sales as of October 2013. In September, manufacturing sales increased by 0.6%.
08:30 — US CPI:
In October, CPI declined by 0.1% (month-over-month) while the core CPI increased by 0.1%. For the upcoming November report expectations call in for a 0.1% increase in inflation. In the absence of inflationary pressure, the Fed is likely to stick to its bond buying program until next year as it tries to stimulate demand in the economy through low interest rates.
Wednesday, December 18
04:30 — Great Britain Claimant Count Change & Unemployment Rate:
In November 2013, the number of unemployed in GB fell to 41.7K while the rate of unemployment declined to 7.6%. Although the claimant count change is generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Unemployment is also a major consideration for those steering the country's monetary policy. For the upcoming December report, economists expect the claimant count change to come in at -35.2K. Any surprises in the number may influence the British Pound.
04:30 — MPC Asset Purchase Facility & Official Bank Votes:
In November, the Bank kept the rate unchanged at 0.5% and the asset purchase program at 375 billion. The BOE's MPC meeting minutes contain the asset purchase vote for each MPC member. The breakdown of votes for the upcoming meeting will provide insights on members changing stance, if any, on asset purchases and how the committee is to enact a change in future purchases.
08:30 — US Housing Starts:
US Census Bureau will release its housing starts monthly update for October 2013. The report has historically depicted an inverse correlation with gold prices.
08:30 — US Building Permits:
In October, building permits increased by 6.2% (m/m) as the adjusted annual rate of building permits reached 1.04 million. If building permits continue to rise, it may indicate growth in the US housing market.
10:30 — Crude Oil Inventories:
EIA (Energy Information Administration) will publish its weekly report on US oil and petroleum inventories for the week ending on December 14, 2013.
14:00 — FOMC Statement & Coffee Projections:
In this highly anticipated final FOMC meeting for 2013 the Fed will announce if it is making any changes to its bond purchases. As US economic data has been improving, ideas are growing that the Fed will begin the tapering process reducing its stimulus which has brought the economy strongly from the crisis in 2008. The Fed is currently purchasing $85 billion in Treasury notes and mortgage-backed securities. Although financial and gold markets are worrying about the prospect of the Federal Reserve announcing the start of tapering of its quantitative easing program, most market analysts don't expect the Fed will taper its bond purchases this year.
Thursday, December 19
08:30 — US Unemployment Claims:
Weekly update will refer to shifts in the initial jobless claims for the week ending December 14, 2013. In the previous report, jobless claims increased by 68K to reach 368K. The upcoming weekly report may affect the US dollar and consequently commodities prices and equities markets.
08:30 — US Existing Home Sales:
This report will show the shifts in existing home sales for November 2013. In October 2013 the number of homes sold fell to a seasonally adjusted annual rate of 5.12 million houses. If the downtrend continues, it may adversely impact the US dollar.
08:30 — Philly Fed Manufacturing Sales:
Monthly survey estimates the growth of the US manufacturing sectors. In November, the growth rate fell from +19.8 in October to +6.5 in November. If the index continues to fall, it may adversely affect the US Dollar and the commodities market.
Friday, December 20
08:30 — Canada Retail Sales:
The upcoming report will refer to retail sales for October. In September 2013, retail sales remained unchanged. Automobile sales account for about 20% of retail sales, but they tend to be very volatile and distort the underlying trend. The Core data is therefore thought to be a better gauge of spending trends. For the upcoming report, economists expect core retail sales to remain unchanged.
08:30 — US Final GDP (q/q):
This will be the third estimate of Q3 2013 real GDP growth. In the previous estimate US GDP increased by 3.6% in Q3 2013. If the growth rate is revised up again, it may positively impact the US dollar and commodities prices.
This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.