Last week was bloody for global financial markets, as it was full of pessimism over the outlook for global growth amid sings major economies around the world are decelerating, where the Fed signaled “significant downside risk to the economic outlook”, and investors will continue to look for more signs throughout this coming week, as the world’s largest economy will release two important reports, the GDP and the Income reports.
Last week U.S. stock indexes as well as global indexes fell heavily, as the Fed signaled their concerns over the outlook for growth, which raised speculations that the U.S. economy is heading into a double dip recession, while data from around the globe also suggested that global growth is slowing, which resulted in heavy losses across the board, as stocks, commodities, and major currencies fell sharply, while the U.S. dollar rose to the highest level in almost 8 months.
However, the fundamentals will start on Tuesday, where traders will be eyeing the new home sales index for the month of August, where new home sales are expected to drop by 1.0% to an annual rate of 295,000, compared with the prior estimate of 298,000. Later in the week, the S&P/CaseShiller house price index is expected to show that home prices rose in July by 0.10%, while compared with a year earlier, home prices are expected to have dropped by 4.70%.
Also the pending home sales will be released later in the week, where expectations signal that pending home sales fell by 1.0%, compared with the prior drop of 1.3%. The existing home sales index last week rose unexpectedly, however, the outlook for the housing market remains weak, as the Fed signaled last week at their FOMC statement that the housing market is still suffering from deep weakness amid elevated unemployment, tightened credit conditions, and record foreclosures.
Although the Fed’s new monetary stimulus dubbed as Operation Twist, where the Fed will buy $400 billion of long-term Treasury securities and sell $400 billion of short-term Treasury securities is aimed at lowering long term interest rates, and accordingly, support the ailing housing market, however, chances that we will witness a rebound in housing activities are rather bleak amid the recent slowdown in overall economic activities in the United States.
Also this coming week, the U.S. Conference Board will release the consumer confidence index for the month of September, where consumer confidence is expected to rise slightly to 47.0 from the prior estimate of 44.5, while later in the week, the University of Michigan will release is final estimate for consumer confidence in September, where the Uni. of Michigan confidence index is expected to remain unchanged from the preliminary estimate at 57.8.
Consumer confidence is likely to take another hit over the coming period, where elevated unemployment levels, in addition to worsening economic conditions are likely to keep consumer confidence under pressure, and that will continue to weigh down on overall spending levels, since consumers are more likely to save their money if they think the economy is not improving.
The durable goods orders index will be released for the month of August, where durable goods are expected to drop by 1.0%, compared with the prior rise of 4.0% in July, while durable goods orders excluding transportation are expected to rise by 0.4%, compared with the prior rise of 0.7%.
The initial jobless claims index will be released on Thursday as usual, where conditions in the labor market are still weak amid the overall weak economic conditions, while the recent slowdown in economic activities could affect the labor market negatively over the coming period, where if the U.S. economy enters a double dip recession, it’s highly likely to witness another round of layoffs by U.S. companies.
The Gross Domestic Product final estimate for the second quarter will be released this coming week, where expectations signal that the U.S. economy expanded in the three months through June by 1.2%%, slightly higher from the prior estimate of 1.0%. Nonetheless, investors are likely to pay less attention to this GDP report than usual, since expectations now signal that the U.S. economy could be heading into recession.
Investors though will pay close attention to the income report for the month of August, where personal income is expected to rise by 0.1% only in August, compared with the prior rise of 0.3%, while personal spending is expected to rise by 0.2% following the prior rise of 0.8%, noting that spending accounts for nearly two thirds of U.S. economic activities.
Moreover, investors will be paying close attention to the Fed’s favorite gauge for inflation, Core PCE, where Core PCE is expected to rise by 0.2% in August, in line with the prior rise, while compared with a year earlier, Core PCE is expected to rise to 1.7% from 1.6%. Nonetheless, the Fed expects inflation to remain below their 2 percent target over the coming period, since energy prices have dropped recently, while the economy remained weak, and that is likely to keep price levels under control.