What Would Janet Do?
Investors have a light economic data week ahead as all eyes point to the Fed and earnings. On the economic front, we have 2Q GDP.
Federal Reserve: On Wednesday (7/26), the Fed will release a statement where everybody will be waiting to see if the Federal Reserve decides to raise interest rates again. Right now, the odds are very low for the Fed to raise rates after raising them ¼ of a point at the last meeting. If the Fed does raise rates for the third time in 2017, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. However, with Treasury Yields, they have been falling all year as China said they would be buying them again putting downward pressure on yields. This statement will not be followed by a press conference with FOMC Chair Janet Yellen taking questions. However, the statement may potentially announce when the Fed may actually begin to unwind their balance sheet, but they will likely just say “later this year.”
Earnings: Earnings continue to heat up as investors get to hear from 190 S&P 500 companies and 13 Dow components this week. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. According to Thomson Reuters I/B/E/S, we have now seen 19% of S&P 500 companies report 2nd quarter earnings so far. Of them, 73% reported revenue above expectations while 74% have reported earnings above expectations.
2Q GDP First Release: On Friday (7/28), we get our first release of US GDP for the 2nd quarter, the first full quarter with Trump as President. The first release is the most impactful. Should the number come in higher than expected, we can expect to see equities go higher. If GDP is less than expected, we may see equities fall as investors believe the economy is not growing as fast as expected. If the number comes in much higher than expected, we should expect the White House to say it was beautiful number and the economy is growing. If it comes in lower than expected, expect Donald Trump to tweet and call it fake news.
Oil: Oil dropped at the end of last week on a report of rising OPEC supply. A scenario I highlighted months ago as members of OPEC really don’t like each other (which is an understatement). Brent finished last week below $49. Investors will be watching Crude Oil Inventories, US rig data, and any other chatter from OPEC to see if oil can push above the $50 threshold or fall lower on a global glut.
Manufacturing PMI: PMI readings from across the globe are also due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies.