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Health & Fitness

David Joy: Information overload coming this week

After a week’s respite from announcements by the Fed, market participants are right back to anticipating the results of the Fed’s next meeting this Wednesday. However, little is expected to change from what they have been saying recently. The economy is improving moderately, any change in policy is dependent upon the strength of the data, and that policy remains accommodative. What makes this meeting interesting is that it is the last one before September, when many investor surveys anticipate the start of QE3 tapering. Perhaps there will be some alteration in the meeting’s statement language in an effort to guide investor expectations regarding the calendar, although that seems unlikely. More likely, the language will remain noncommittal, shifting the focus back onto the flow of data, where it belongs.

In that regard, the week ahead is a data junkie’s dream. In addition to the Fed meeting, we get:

  • The July jobs report on Friday
  • The advance estimate of second quarter GDP
  • The ISM manufacturing report
  • Automobile sales and factory orders
  • June monthly personal income and spending
  • PCE deflator for June
  • Construction spending and pending home sales
  • Regional manufacturing reports from New York and Milwaukee, and
  • The S&P/CaseShiller Home Price index.

In short, we will be barraged with a volley of economic releases covering a wide swath of the U.S. economy. This will provide the latest insight into whether or not the economy is firming as many forecasters expect, and how that might influence the Fed in the months ahead.

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The jobs report will be the most influential. According to Bloomberg, the consensus is looking for 185,000 new non-farm jobs to have been created in July, with the unemployment rate falling one-tenth to 7.5%. Job growth in the past three months has averaged 196,000 which, if the consensus is correct, would represent a modest slowdown from the recent trend, but not enough to raise concern, especially given the size of the labor market and the sampling methodology used to determine monthly data. Still, it would most likely embolden the more dovish among both FOMC members and watchers, and lower expectations that any commencement of tapering is imminent. Second quarter GDP will be largely overlooked as old news, except that the ranges of expectations for growth are fairly wide. Depending on changes in inventories and trade, the annualized growth rate is estimated to be anywhere from 0.7 to 2.0%. It is how this activity is viewed in terms of its implications for growth in Q3 that will lend this release its importance. Second half economic activity is widely expected to accelerate, so the behavior of the individual components of the Q2 report will influence perceptions of how the second half is getting started and the odds of it gathering momentum. The remainder of the scheduled reports on the economic calendar would be enough by themselves to fill a normal week. Housing, manufacturing, and consumer spending, all important contributors to the economic recovery, are in the spotlight and each is expected to show modest improvement. Collectively, these reports will either reinforce or dispel the notion that the economy exited the second quarter in better shape than when it began, and set the tone for the remainder of the summer, normally a time of slower activity in terms of investor engagement and lower monthly returns historically.

Last week, with no news from the Fed and just okay economic news, stocks stumbled slightly and fell for just the first time in five weeks. The decline was fractional, just 0.03%, but it did give rise to a growing chorus, albeit still a minority, of those expecting at least a modest correction in the broader averages. Second quarter earnings season, which has been decent overall, is largely baked in, and with the Fed scheduled to be absent until mid-September, the conditions for a minor selloff could arise. The S&P 500’s 50 day moving average resides at 1,645, or roughly 3% below the 1,692 close on Friday. The 200 day moving average sits at 1,531, or 10% below last week’s close. Bond yields drifted higher last week, as the 10-Year Treasury closed eight basis points higher at 2.56%, reversing the declines of the prior week, but remaining well below the 2.74% close from three weeks ago. High yield bonds also saw their yields push higher on the week. The yield-to-maturity of the Bank of America Merrill Lynch High Yield Master II index jumped 12 basis points to 6.61%, pushing its spread to treasuries wider for the first time in three weeks.

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The news from overseas last week was mixed. There was some encouraging economic data from Europe, including the first positive Eurozone aggregate composite purchasing manager’s report since January 2012, as well as rising confidence surveys. Despite that news, European stocks fell slightly. This week’s Eurozone calendar contains a few significant reports, including confidence surveys and final PMI manufacturing for July. There is also a meeting of the European Central Bank on Thursday. In China, efforts to curtail industrial production in industries suffering from overcapacity pressured commodity prices lower. The Dow Jones UBS Commodity index lost 2.3% on the week and is down 9% on the year. Chinese equities rose almost one percent, but remain 11% lower on the year. From China this week we learn the latest results from the manufacturing sector.

In all, it will be a busy week for data and for policy.

Disclosures
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

The Dow Jones-UBS Commodity Index℠ is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME).

The Bank of America Merrill Lynch High-Yield Bond Master II Index is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.

The Eurozone Manufacturing Purchasing Managers’ Index (PMI) is a weighted indicator calculated from indices of output, new orders, employment, suppliers’ delivery times and stocks of purchases.

The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.

It is not possible to invest in an index.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

© 2013 Ameriprise Financial, Inc. All rights reserved.

    
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