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Important releases hone in on rates and consumer spending

Important releases hone in on rates and consumer spending (Part 1 of 10)

Important releases hone in on rates and consumer spending

Interest rate hike

The hottest topic for market players right now is the interest rate hike. Last week’s labor releases spurred the recovery. Many investors had thought the recovery was flagging after the negative GDP surprise in the first quarter.

Non-farm payrolls increased by 288,000 in June. They’re now much higher than the market consensus of 211,000 jobs. This also reduced the unemployment rate to 6.1%—the lowest since September 2008. Anyone remember Lehman? The better-than-expected jobs report propelled the S&P 500 Index (VOO) to a new record of 1,985.44. June was also the fifth straight month that the economy added 200,000-plus jobs. At this pace, we could get to the Fed’s unemployment targets much earlier than expected.

Part 1Enlarge Graph

Bond (MUB) yields rose in response to the upbeat data. The S&P Municipal Bond Index fell 0.12% on July 3, the date of the payrolls release. The index is up 5.6% this year.

What do the Fed’s policymakers think?

This week, a number of Fed officials will discuss their views. These include Jeffery Lacker and Narayana Kocherlakota on Tuesday, Stanley Fischer and Esther George on Thursday, and Charles Plosser and Charles Evans on Friday. Fed chair Janet Yellen already said in a speech last week that a rate rise in response to asset market bubbles isn’t in the cards. With inflation climbing over the past two months, it will be interesting to see if there’s any change in the Fed’s accommodative monetary policy following the better-than-expected labor releases.

Economic data this week

Besides these speeches, the Fed is expected to release the FOMC minutes for the June meeting on Wednesday, July 9. We’ll preview these minutes in Part 3 of this series. Other data releases this week include:

  • Gallup US Consumer Spending Measure on Monday, July 7 – Part 2
  • Consumer credit on Tuesday, July 8 – Part 4
  • Job Openings & Labor Turnover Survey on Tuesday, July 8 – Part 5
  • NFIB Small Business Optimism Survey on Tuesday, July 8 – Part 6
  • Retail indicators the ICSC-Goldman Sachs Store Sales Index & Johnson Redbook Retail Sales Index on Tuesday, July 8, and Chain Store Sales on Thursday, July 10 – Part 7
  • Mortgage Bankers Association Purchase Index on Wednesday, July 9 – Part 8
  • Initial Jobless Claims on Thursday, July 10 – Part 9
  • Wholesale Trade on Thursday, July 10 – Part 10

These indicators are likely to affect both stock (MDY) and bond (BND) markets. They’ll also affect  stocks relating to the consumer (XLY) and manufacturing sectors.

To find out about the first indicator to release this week, read on to the next part of this series.

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