Get Ready for the World Economy’s Biggest Week of 2019 – Bloomberg

US equities posted another solid week for investors. On Friday, growth-centric indices Nasdaq Composite and Russell 2000 both gained greater than 1%. The S&P 500 added 0.7% and the Dow Industrials edged higher by 0.2%. Leadership by the Nasdaq, particularly in recent weeks, is an indication that “risk-on” has reemerged as the dominant driving force of sentiment and direction as we head into this month-end FOMC meeting. The only concern that surfaced as a result of last week’s trade was the drop in volume on Friday.

Economic data results released last week ranged from largely in-line, to better than expected. Of particular significance, the GDP figures for Q2 were released on Friday. Econoday consensus was 1.9%. The initial reading was 2.1% — though better than consensus, it was lower than Q1’s 3.1%. Real consumer spending Q/Q change SAAR was 4.3%, versus Q1’s revised 1.1%. The takeaway from the report seems to be that the topline 2.1% reading was enough of a deviation from Q1’s 3.1% to justify a 25 bps move on rates by the Fed. However, it wasn’t dramatic enough to warrant a 50bps cut. Another important takeaway from the report was the strength of consumer spending. The 4.3% Q/Q gain in consumer spending is not entirely surprising given that the US economy is at full employment and wages are rising faster than the current the core rate of inflation.

Based on the economic data that we have received in recent weeks and months, it is clear the US economy appears to be weathering the current global slowdown and stalled US/China trade talks fairly well. In the event the Fed does cut this week, it will be an indication that the Fed has migrated from being strictly data-dependent to being more forward-looking. As Investors Business Daily framed it this weekend:

…Signs that the economy is faltering are pretty hard to find. Financial markets have shifted odds in favor of a quarter-point cut (79%) vs. a half-point cut (21%). Either way, markets expect a cumulative 50-basis point cut by the Fed’s Sept. 18 policy decision.

Earnings thus far this earnings season have provided justification for bulls to remain engaged from the long-side. For example, Alphabet rose 10%, Starbucks was up 9.7%, and Chipotle gained 4.5% last week. Headline earnings releases this week will be provided by Apple, Mastercard, Yeti, and Beyond Meat. Exxon Mobil, Chevron, Merck, and Pfizer are all on tap to report results this week as well.

As it stands, the current market outlook is “Confirmed Uptrend.”

Economic Calendar Highlights:

FOMC Meeting begins
Personal Income and outlays for June are due out at 8:30 am. In May, the M/M change in personal income was a gain of 0.5%. Consumer spending rose .4% and the PCE Price Index was 0.2%. Econoday consensus is calling for a M/M gain of 0.3% in personal income and consumer spending.

The EIA Petroleum Status Report for the week ending 7/26 is released. Last week’s report reflected a 10.8 bbl draw in crude inventories. Gasoline inventories were flat -0.2bbl and distillates rose 0.6 bbl. FOMC Meeting Announcement is released at 2:00 pm. The street is expecting a 25 bps cut.
Fed Chair Powell will hold his press conference at 2:30. Given that there is likely to be a 25 bps cut in rates, the street will be looking to game the likelihood of the next move in rates.

Weekly Jobless Claims are to be released at 8:30 am. Last week’s claims totals remain in-channel – 206k, 4-week MA 213k, New Claims -10k.
The ISM Mfg. Index for July is out at 10:00 am. Econoday consensus is 51.9 versus last month’s 51.7.

The July Employment Report is due out at 8:30 am. Last month’s report was significantly stronger than expected and fueled some hedging on the Fed’s likelihood of a 50 bps cut at this week’s meeting. This release comes after the FOMC Meeting. Econoday consensus for this report is +156K, 3.6%, private payrolls M/M 154K. Average Hourly Earnings M/M are expected to be 0.2%.
International Trade figures for June are released at 8:30 am. Econoday consensus is $54.7 B.

Flickr photo: verchmarco

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