The schedule for the week of August 12th includes:
- Monday: Treasury Budget
- Tuesday: NFIB Small Business Optimism Index, ICSC-Goldman Store Sales, Retail Sales, Import and Export Prices, Business Inventories, and Dennis Lockhart speaks
- Wednesday: MBA Purchase Applications, Producer Price Index, and Atlanta Fed Business Inflation Expectations, and James Bullard speaks
- Thursday: Consumer Price Index, Jobless Claims, Empire State Mfg Survey, Treasury International Capital, Industrial Production, Housing Market Index, Philadelphia Fed Survey, 5-Yr TIPS Announcement, and Fed Balance Sheet
- Friday: Housing Starts, Productivity and Costs, and Consumer Sentiment
I spoke with Kenneth Polcari, Director, NYSE Floor Operation, at O’Neil Securities, Inc., and frequent commentator on CNBC, about the economic calendar for next week. Polcari is focused on the overall market, Federal Reserve (“Fed”), housing data, New York and Philadelphia Fed Survey, producer price index, and consumer price index.
With earnings season coming to an end, Polcari is expecting the market to trade sideways for the rest of the summer. The equity market will continue to churn on low volume, as most traders are away on vacation. The market is more concerned with the next Federal Reserve chairman and monetary policy, particularly the Jackson Hole summit in the fall, rather than the macro data. He feels the market is ahead of itself. The market has no reason to go higher, and unless some terrorist related news materializes, it will continue with the dog days of summer. He believes, however, that the equity market will be higher at the end of the year.
Who is the next Fed Chief?
Is it going to be former Fed Governor Donald Kohn, current Fed Vice Chairwoman, Janet Yellen, or former Obama Economic Advisor Lawrence Summers? This is holding the equity market in check for now. Polcari thinks it will be Janet Yellen. If the Fed begins to taper by September then it will add pressure to the equity markets. He does not believe the Federal Reserve will roll back its stimulus program in September, because there are elections in Germany. Chancellor, Angela Merkel is up for reelection in September, and she has been a big supporter of global stimulus. The US central Bank will not want to scale back its quantitative easing program at the same time the Chancellor is up for reelection. The Fed will not want to create additional volatility to upset the markets. He predicts the Federal Reserve will start to taper at the end of the year or early next year.
Are We In For The Next Housing Bubble?
Polcari feels we could be on the verge of another housing bubble. The housing market is artificially inflated, particularly the new home sales data. The new home builders are building new homes and are doing everything to get buyers into properties, including financing and providing added incentives such as fully furnished homes. Existing homes data is a little different, as these are the ones which banks are giving potential buyers a more difficult time to secure a mortgage. However, with the recent rise in the 10-year yield, it has pushed mortgage rates to jump and banks are starting to relax their lending standards to get the higher rates.
New York and Philadelphia Fed Survey
All the regional Fed data have been volatile and uneven in recent weeks Polcari said. This is the reason why he believes the central bank will not taper its stimulus program. When the Fed does start rolling back its monetary policy, the markets will swing swiftly and sharply, and there will be some pain. Half of investors in the market want the Fed to continue its stimulus while the other half wants the agency to start tapering. It will not be easy for Chairman Ben Bernanke and company to get out of its quantitative easing program.
Producer & Consumer Price Index
Next week investors will get inflation data from the manufacturing and the consumer sector. He is not expecting any surprises on the upside from the producer price index data. On the consumer price index data he is concerned with inflation creeping up, as food and gasoline prices are on the rise again.