A docket full of top-tier data combined with additional financial and credit market concerns will lead to volatile market moves next week. The important reports to be released next week will be Tuesday's FOMC interest rate decision, August's inflation data, more housing data and regional manufacturing surveys.
In secondary data, markets will receive industrial production and capacity utilization and TIC flows. Second-tier data will be released in Canada with manufacturing shipments, international securities transactions and wholesale sales.
Looking at U.S. medium-term bond markets, Max Bublitz, fixed income strategist from SCM Advisors, said he expects two-year yields to test the 2.00% levels, but he is expecting increased volatility over the next week, which will make it difficult to pinpoint where yields will go.
"We have so much data and so much stuff that could happen next week, we could be at 2.60% as easily as 2.20%, in the two-year notes," he said.
He said a nice resolution to the Lehman Brothers situation followed by better-than-expected housing data and lower inflation data could cause Treasuries to sell off. On the flip side, more financial concerns, following by higher CPI data and continued weakness in the housing market, will maintain the current levels in Treasuries.
Paul Mendelson, chief investment strategist from Windham Financial Services, said he doesn't expect the turmoil in financial services to end any time soon. At the same time, he doesn't expect to see any major bank failures, adding that the U.S. government would step in because the alternative could potentially be disastrous.
"I don't think Bernanke really wants to see what would happen if a bank like Lehman Brothers does fail," he said. "The alternative would be catastrophic and I don't think that is a question we want answered. The risks are just too great."
"I think the best result would be if someone came in and bought Lehman Brothers and then maybe we can start putting a price on some of these assets," he added.
Although there are more risks heading into next week, Mendelson said equity markets are still holding support levels, and it could be a time to take a long position in the markets. He added he expects to see a bounce that will hopefully last through September. With equities rallying, he expects bonds to sell off.
"Equity markets are looking oversold at these levels. I think if the world doesn't come to an end next week, we could see a bounce off the 1200 level in the S&P," he said.
Although markets are currently focused on credit markets, Jack Bauer, fixed income strategist from Manning Napier, said he expects concerns over the economy to once again move to the centre stage.
"Right now I am more concerned about the economic environment, which I think will continue to weaken," he said. "Looking at long bonds I think 30-year notes could test the 4.17% low."
Looking at the data, markets will be keeping an eye on the FOMC interest rate decision on Tuesday, which is currently at 2.00%. But Bauer said he thinks the Fed could change their risk assessment for more economic weakness, adding that markets are pricing in a 30% chance of a cut in December.
"I don't really know what a cut would do for them. They have had more traction from the nationalization of Fannie and Freddie because mortgages have come down 30 basis points, which is what they need," he said.
All times in EDT
Monday:
The week starts with the release of U.S. empire state manufacturing survey and industrial production and capacity utilization. Economists expect industrial production to fall 0.3% following July's rise of 0.2%. Capacity utilization is forecasted to come in at 79.6% following the 79.9% recorded in July. Finally, the consensus is for September's Empire State survey to tick slightly lower to a reading of 1, down from August's reading of 2.8
8:30 CA New Motor Vehicle Sales (M/M) July Exp: 0.0% Prior: -1.0%
8:30 US Empire Manufacturing September Exp: 1 Prior: 2.8
9:15 US Industrial Production August Exp: -0.3% Prior: +0.2%
9:15 US Capacity Utilization August Exp: +79.6% Prior: +79.9%
13:00 US Treasury to Sell $28B 3-Month Bills
13:00 US Treasury to Sell $27B 6-Month Bills
Tuesday:
It's a big day in the U.S. with the release of the August inflation data and the FOMC interest rate announcement. Expectations are for annualized core U.S. inflation to increase by 2.6% following the previous gain of 2.5%. The core monthly rate is expected to rise 0.2% following a 0.3% rise in July. Economists are expecting the Fed to hold rates steady at 2.00%.
In Canada, markets will receive manufacturing shipments for July, which are expected to rise 1.0% following June's rise of 2.1%.
8:30 CA Manufacturing Shipments (M/M) July Exp: +1.0% Prior: +2.1%
8:30 US Consumer Price Index (M/M) August Exp: -0.1% Prior: +0.8%
8:30 US CPI Ex Food & Energy (M/M) August Exp: 0.2% Prior: +0.3%
8:30 US Consumer Price Index (Y/Y) August Exp: +5.5% Prior: +5.6%
8:30 US CPI Ex Food & Energy (Y/Y) August Exp: +2.6% Prior: +2.5%
8:30 US CPI Core Index (SA) August Prior: 216.230
8:30 US Consumer Price Index (NSA) August Prior: 219.964
9:00 US Net Long-term TIC Flows July Exp: $55.0B Prior: $53.4B
9:00 US Total Net TIC Flows July Prior: $51.1B
13:00 US NAHB Housing Market Index September Exp: 17 Prior: 16
13:00 US Treasury to Sell 4-Week Bills
14:15 US Federal Reserve Open Market Committee Meeting Exp: 2.00% Prior: 2.00%
17:00 US ABC Consumer Confidence W/E September 14 Prior: -47
Wednesday:
U.S. housing data will once again be in the spotlight with the release of housing starts and building permits for August. Housing starts are expected to come in at 950,000, down from July's starts of 965,000. Building permits are expected to come in at 930,000, down from 965,000 permits in July.
In Canada, international securities transactions for July are forecasted to show a surplus of $5.4 billion, down from June's surplus of $7.247 billion.
7:00 US MBA Mortgage Applications Prior: 9.5%
8:30 CA International Securities Transactions July Exp: C$5.400B Prior: C$7.247B
8:30 US Current Account Balance Q2 Exp: -$179.2B Prior: -$176.4B
8:30 US Housing Starts August Exp: 950k Prior: 965k
8:30 US Building Permits August Exp: 930k Prior: 937k
10:35 US DOE U.S. Crude Oil Inventories W/E September 12 Prior: -5828k
10:35 US DOE U.S. Gasoline Inventories W/E September 12 Prior: -6462k
10:35 US DOE U.S. Distillate Inventory W/E September 12 Prior: -1252k
10:35 US DOE U.S. Refinery Utilization W/E September 12 Prior: -10.41%
Thursday:
Markets will receive more regional U.S. data with the release of the Philly Fed survey. Economists expect the survey to continue to move higher to a reading of -10, up from August's reading of -12.7.
Canadian wholesale sales for July will also be released on Thursday. Sales are expected to rise 0.8% following a 2.0% rise in June.
8:30 CA Leading Indicators (M/M) August Exp: 0.0% Prior: 0.0%
8:30 CA Wholesale Sales (M/M) July Exp:
0.8% Prior: +2.0%
8:30 US Initial Jobless Claims W/E September 13 Exp: +440K Prior: +445K
8:30 US Continuing Claims W/E September 6 Prior: 3538K
10:00 US Philadelphia Fed September Exp: -10 Prior: -12.7
10:00 US Leading Indicators August Exp: -0.2% Prior: -0.7%
10:30 US EIA Natural Gas Storage Change W/E September 12 Prior: 58 Bcf
Friday:
The week ends with Chicago Fed President Charles Evans speaking on the economy at a conference hosted by the Swiss central bank. U.S. markets will also receive regional and state employment data.
10:00 US Regional and State employment and Unemployment
13:00 US Fed's Evans Speaks on Economy at Swiss Central Bank Conference
By Neils Christensen and edited by Nancy Girgis
©CEP News Ltd. 2008