Week ahead in the US financial markets
By Joseph Brusuelas
A week light on economic data will be dominated by the minutes on Tuesday from
the September 16 meeting of the Federal Open Market Committee (FOMC) and
Federal Reserve chairman Ben Bernanke's speech that same day. Monday will see
former Fed chairman Paul Volker and former Fed vice chairman Roger Ferguson
address the topic of global financial supervision in the global marketplace.
Tuesday 2:15pm (all times eastern daylight)
FOMC minutes
The volume and magnitude of the steps taken by the Fed in the run-up to the
most recent FOMC meeting and those taken in its aftermath are arguably the most
important taken in the long
history of the institution. The primary focus of the minutes will be the
discussion organized around the Fed decision of September 14 to accept a wider
range of collateral under both the term securities lending facility and the
primary dealer credit facility programs. The secondary focus of the market will
be to assess the probability of either an inter-meeting rate cut or a reduction
in the Federal Funds rate when the FOMC meets on October 29 based on the
economic assessment of the condition of the consumer, the labor market and
business investment. To a certain extent, Mr Bernanke has already made the case
that the downside risk for the consumer, jobs and corporate investment may
warrant a rate cut, but a fragile market will be looking for signs of imminent
action by the Fed ahead of its next meeting.
Pending homes sales in August should see another month of declines when we
anticipate that the headline will decline 2.3% vs the 3.2% drop posted in July.
The purchasing environment in August picked up slightly in the existing home
sector mostly due to the availability of heavily discounted foreclosures that
have hit the market. According to the National Association of Realtors between
35-40% of the sale of existing homes can be attributed to the purchase of
distressed properties.
The continuing claims series illustrates the growing weakness in the US labor
sector. The number of individuals collecting benefits is the highest since
September 2003. While initial claims are higher than otherwise would be due to
the dislocation caused by the hurricanes to hit the Gulf Coast in September,
the upward trend in the data is clear and we expect to observe an increase in
claims associated with the credit panic in the coming weeks.
The trade balance for August should see some improvement on the back of the
decline in oil prices. Our forecast implies that the trade balance should
improve to -$57.3 billion vs the -$62.98 billion posted in July. Ex-petroleum
the deficit stands at -$18.80 billion and is a reflection of the relative
weakness of the dollar and the extent to which the US relies on oil imported
from abroad. The moderation in energy prices should facilitate a further
narrowing of the trade deficit going forward, but the deceleration of the
global economy should cause the increase to moderate in coming months.
After posting the single largest decline in the cost of imported goods in
nearly two decades, import prices for the month of September should fall 2.5%
month on month, primarily due to the correction in global energy markets during
the sampling period. Demand for commodities and energy declined perceptibly
during the period and the risk for the trading day is to the downside.
Moreover, there are now signs that reduced demand in the US has spilled over to
other industrialized nations where firms may feel pressed to reduce prices to
control inventory levels and maintain market share abroad. For now the decline
in import prices remains primarily an energy story. Should the clogging up of
credit markets continue, prices of imported goods across the broad spectrum of
the economy could see further retrenchment.
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