5 Things to Watch on the Economic Calendar This Week

Economy

In the week ahead, market players will be turning their attention to a highly anticipated speech by Federal Reserve Chair Janet Yellen for fresh clues on the timing of the next U.S. rate hike.

In addition, investors will continue to focus on U.S. economic reports to gauge if the world's largest economy is strong enough to withstand a rate hike in the coming months, with Friday’s revised second quarter growth data in the spotlight.

Meanwhile, market participants will be looking ahead to a second reading on U.K. growth data for further indications on how business investment and consumer spending performed in the run-up to the Brexit vote.

Traders will also be looking to Tuesday’s survey data on euro zone business activity for fresh signals on the health of the region's economy in wake of Britain's vote to exit the European Union earlier in the summer.

Elsewhere, Japanese inflation data will also be in focus as investors assess the need for further stimulus in the world's third's largest economy.

Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Yellen speaks at Jackson Hole

Investors are looking ahead to this week's annual meeting of top central bankers and economists in Jackson Hole, Wyoming, due to take place from Thursday to Saturday.

The highlight will be when Fed Chair Yellen takes the stage on Friday. Speculation is rife that she will use the speech to start the race for a rate hike as soon as September following a recent barrage of hawkish Fed speakers.

The annual Fed symposium has sometimes been used by Fed chairs to make important policy pronouncements.

According to Investing.com's Fed Rate Monitor Tool, investors are pricing in just a 12% chance of a rate hike by September. December odds were at around 46%.

2. Revised U.S. second quarter growth

The U.S. is to release revised figures on second quarter economic growth at 8:30AM ET (12:30GMT) Friday. The data is expected to show that the economy expanded by 1.1% in the April-June period, downwardly revised from a preliminary estimate of 1.2%.

Besides the GDP report, the U.S. is to produce data on new home sales, existing home sales, durable goods orders, weekly jobless claims and revised consumer sentiment numbers.

3. U.K. Q2 GDP - second estimate

The Office for National Statistics is to produce a second estimate on U.K. economic growthfor the April-to-June quarter at 08:30GMT (4:30AM ET) on Friday. The report is forecast to confirm the economy grew 0.6% in the three months ended June 30, unchanged from a preliminary reading.

However, the bigger question is about third quarter, post-Brexit, growth prospects.

4. Flash euro zone PMIs for August

The euro zone is to publish preliminary data on manufacturing and service sector activity for August at 08:00GMT (4:00AM ET) on Tuesday, amid expectations for a modest decline.

Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 07:00GMT and 07:30GMT respectively.

Meanwhile, a report on August German business sentiment will also be in focus, with the Ifo research institute slated to release its findings at 08:00GMT (4:00AM ET) on Thursday.

5. July Japanese inflation data

Japan's Statistics Bureau will publish July inflation figures at 23:30GMT Thursday (7:30PM ET). Market analysts expect the headline figure to remain negative, falling 0.4% year-on-year, which would be the eighth straight month of declines.

The country has been struggling to hit its 2% consumer price target, maintaining pressure on policymakers to support the world's third largest economy.

Source by Investing.com

Fed minutes could provide wide open door for rate hike in December

Economy

Investors looked ahead Wednesday to the publication of the minutes from the July meeting of the Federal Reserve (Fed) at 18:00GMT, or 14:00ET, for clues as to the timing of the U.S. central bank’s return to monetary policy normalization.

The July 27 statement and said near-term risks to the U.S. economic outlook had diminished, but the Fed opted to maintain interest rates on hold and did not signal an imminent return to policy tightening.

The Federal Open Market Committee (FOMC) minutes, though often considered a lagging indicator since they represent the Fed’s thoughts from three weeks ago, will still be perused for details on policymakers’ outlook and will be especially relevant in light of the fact that no press conference was offered at the last meeting.

Some observers have commented that the strong July employment report, released after the July 27 decision, may have done much to turn the minutes into an anachronism.

However, experts from Bank of America Merrill Lynch (BoAML) appeared to hold a different opinion: “Headline payroll growth was strong, but with the unemployment rate steady, wages stable, and the labor force participation rate ticking up, the report does little to force the Fed\'s hand and leaves them comfortably on hold for now,” these analysts said in a note to clients.

Details under the microscope

Experts from Royal Bank of Scotland suggested that the minutes would likely follow the script provided by the July statement itself by noting that near term risks to the outlook are receding.

“But (they) may also begin to tilt the Fed’s assessment of the balance of risks towards further tightening again,” they said.

“This would be a clear signal policymakers think September’s FOMC meeting could potentially be a ‘live’ venue for changing interest rates,” RBS explained.

Their opinion was in line with remarks made on Tuesday by New York Fed chief William Dudley and Atlanta Fed president Dennis Lockhart.

UBS economists also said their focus would be to examine details about the key addition to the July statement: “Near-term risks to the economic outlook have diminished.”

They noted that this was the first mention of reduced risks since December when the Fed said risks to the outlook were balanced.

“If we are correct, it would suggest that July was the start of the clock for a year-end rate hike,” UBS explained.

Allianz SE chief economic adviser and former PIMCO chief exec Mohammed El-Erian noted growing recognition that the prolonged period of ultra-low interest rates could undermine the financial system.

“Hence, the Fed will leave the door open for a rate increase in September, and open much wider for December -- in hopes that the country’s policy regime may move away from excessive reliance on the central bank toward a more comprehensive response including more balanced demand management measures, structural reforms to amplify the economy's dynamism, actions to address pockets of over-indebtedness and much better global coordination,” El-Erian wrote in an opinion piece for Bloomberg.

Key factors ahead

With this idea that the Fed will be looking to signal for an end of the year move on policy, analysts identified key upcoming calendar events to keep an eye on.

UBS pointed to Fed chair Janet Yellen’s appearance at the Economic Symposium in Jackson Hole on August 26 and stated that they expect her “speech to support the view for a hike on the way in December”.

Meanwhile, RBS placed their focus on the August jobs report to be released on September 2 after the prior two months’ releases gave strong readings.

“Another firm report for August will increase FOMC members’ confidence further ahead of next month’s meeting,” they concluded.

Market reaction may be short-lived

While BoAML was expecting the minutes “to offer a bit more optimistic assessment of the U.S. economy and global financial conditions, similar to the July statement”, they weighed in on the possible reaction in currency markets.

“The knee-jerk reaction could see the dollar strengthen as this will be viewed on the hawkish side given the dollar selloff we have seen since the nonfarm payrolls report,” they said.

“But, a failure by the Fed to signal hikes are imminent and/or a more protracted normalization cycle means the FX market impact is likely to be short-lived,” they warned.

Markets ahead of the minutes at 13:40GMT, or 9:40AM ET

While waiting for the publication of the minutes, Wall Street opened slightly lower. The Dow 30 fell 42 points, or 0.22%, the S&P 500 lost 4 points, or 0.19%, while the tech-heavy Nasdaq Composite traded down 15 points or 0.28%.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.18% at 94.92, off the previous session’s seven-week low of 94.38.

Gold for December delivery on the Comex division of the New York Mercantile Exchange dipped $8.85, or 0.65%, to trade at $1,348.05 a troy ounce, after rising $9.40, or 0.7%, on Tuesday.

Fed fund futures were currently pricing in a 12% chance of a rate hike in September, according to Investing.com’s Fed rate monitor tool. The odds for November and December were 15.6% and 47.8%, respectively.

Source by Investing.com

Investors cool on Hong Kong stock market link with 'Wild West' Shenzhen

Economy

A plan to connect the giant stock markets of Shenzhen and Hong Kong offers global investors tempting access to China's fast-growing tech sector, but high valuations and a reputation for wild speculation are likely to keep many buyers at bay, money managers said on Wednesday.

China's cabinet approved the long-awaited scheme on Tuesday, marking one of the country's biggest capital market reforms in over a year, though a launch date has yet to be set.

But the scars from last year's stock market crash are still fresh, and analysts say an avalanche of foreign funds is unlikely as the world's second-largest economy continues to slow and the yuan currency hovers near six-year lows.

The Shenzhen stock market has exploded into the second busiest in the world, and technology stocks account for nearly a quarter of its listings as Beijing encourages new economic growth drivers.

But many firms are small and unknown, and overall valuations are already a third higher than in neighboring Hong Kong and more expensive than other China-focused shares listed abroad.

“Investors aren't very enthusiastic about Shenzhen because the timeline (for the launch) is quite long and there are better plays elsewhere in the Baidu's, Alibaba's and Tencent's rather than looking for value in Shenzhen,” said Alex Wong, reeling off the names of China tech firms which have attracted global attention.

Wong is a portfolio manager at Ample Capital with $100 million in assets under management.

Indeed, China's notoriously speculative markets were little fazed by the news, with Shenzhen ending only modestly higher and Hong Kong stocks (HSI) (HSCE) slipping.

Charles Li, CEO of Hong Kong Exchanges & Clearing (HK:0388) said the new link would be launched by Christmas if not sooner, a timeline longer than the Shanghai-Hong Kong connect scheme which was implemented in a much shorter time frame in 2014.

The Shanghai-Hong Kong link was also launched with much fanfare, but it failed to gain traction for a long time after China's stock markets plunged more than 40 percent last summer.

“We expect flows to be even weaker under the Shenzhen Connect than under the Shanghai Connect, given the latter covers more stocks that are of interest to global investors, while the Shenzhen Connect doesn't expand the investable universe in Hong Kong for mainland investors that much," according to a BofA Merrill Lynch Global Research report.

Shenzhen is Asia's busiest exchange, with monthly turnover topping $1 trillion. Its average daily turnover ranks behind only the New York Stock Exchange, according to the World Federation of Exchanges data.

Turnover on some counters outstrip that of larger blue chips, with punters keen to plunge into "New Economy" shares in hopes of making a quick buck.

The Shenzhen market has more small-cap stocks than Shanghai, with an average market capitalization of about half of that of Shanghai listed shares, according to East Capital.

On Wednesday, for example, the top three traded stocks on the Shenzhen exchange each had a far higher turnover than the busiest stock on the Hong Kong bourse: the Hong Kong Exchanges and Clearing Ltd.

But on a market capitalization basis, they totaled half of that of the Hong Kong stock market operator.

Despite China's removal of overall investment quotas for both the Shenzhen and Shanghai connect plans, daily investment limits remain and other concerns persist.

Expectations of further weakness in the yuan may also keep international investors away. It has lost more than six percent of its value since Beijing suddenly devalued it last August.

“In terms of my portfolio, I haven’t done anything around Connect yet as A-shares are underperforming and we also have a view that the Chinese currency may depreciate,” said Arthur Kwong, head of Asia-Pacific equities, at BNP Paribas (PA:BNPP) Investment Partners.

Source by Reuters

Atlanta Fed raises U.S. third-quarter GDP view to 3.6 percent

Economy

The U.S. economy is on track to grow at a 3.6 percent annualized rate in the third quarter on data that showed domestic housing starts unexpectedly rose to a five-month high in July, the Atlanta Federal Reserve's GDP Now forecast model showed on Tuesday.

The latest third-quarter GDP estimate was higher than the 3.5 percent figure calculated last Friday, the Atlanta Fed said on its website.

Source by Reuters

Investors cut cash, load up on EM and U.S. stocks: BAML

Economy

Global investors have cut their cash holdings sharply and added to emerging market and U.S. stocks in August as global growth expectations have rebounded, a Bank of America Merrill Lynch (NYSE:BAC) (BAML) survey indicated on Tuesday.

Cash levels dropped to 5.4 percent from a 15-year high of 5.8 percent in July, the bank's monthly poll of fund managers showed, as risk appetite picked up.

A net 23 percent of investors now expect the global economy to improve over the next 12 months, an optimism reflected in the overall equity allocation recovering to a net overweight of 9 percent. This was up from a net 1 percent underweight last month - the first underweight in four years.

Among the biggest beneficiaries of this switch were emerging market stocks, where the allocation rose to a net 13 percent overweight - the highest level since September 2014. This was up from 10 percent last month.

Emerging market equities (MSCIEF) have rallied hard since January, and are up over 15 percent year-to-date.

BAML said central banks' creation of a low and stable rates environment was a big factor driving the optimism. Only 13 percent of respondents expect the negative interest rate policies pursued by the Bank of Japan or the European Central Bank to end within the next 12 months.

In addition, fewer managers are taking out protection against a sharp fall in equity markets in the next three months, suggesting they think the global rally has legs.

"Investors are less bearish, but sentiment has yet to shift from 'fear' to 'greed'. As such, we expect stock prices to rise further until bonds throw another tantrum," said Michael Hartnett, chief investment strategist at BAML.

The allocation to U.S. equities swelled to its highest since January 2015, at a net 11 percent overweight, but the allocation to euro zone stocks remained low at a net 1 percent overweight.

The UK equity allocation improved slightly to a net 21 percent underweight from 27 percent underweight last month. Investors had cut their UK exposure sharply after Britain's shock vote to leave the European Union.

The outcome of the referendum wiped billions off share prices, pushed sterling to a 31-year low against the dollar and raised fears of a recession in Britain.

Perhaps concerned that the Brexit vote had set a precedent for other EU members, 22 percent of poll respondents said EU disintegration was now the biggest tail risk haunting global financial markets.

This was followed by renewed Chinese devaluation, chosen by 18 percent, and U.S. inflation, picked by 16 percent.

A total of 173 participants with some $518 billion under management responded to the poll, which was carried out between August 5-11.

Source by Reuters

RBI's Rajan calls for revamp of India's bank regulators

Economy

India's central bank governor Raghuram Rajan called on Monday for a new structure to oversee state-owned lenders, saying too many regulators had overlapping jurisdictions.

Rajan listed a number of institutions that oversee banks, including parliament, the recently created Banks Board Bureau to improve governance at state-owned lenders and the Reserve Bank of India.

He added that the government and the RBI also needed to reduce the difference in treatment towards private lenders and their state-owned rivals, which are subject to mandates including lending to under-served segments of the population.

However, the RBI governor, who is due to step down on Sept. 4, said his views were intended to start a discussion and did not represent the formal stance of the RBI.

"With so many overlapping constituencies to satisfy, it is a wonder that bank management has time to devote to the management of the bank," Rajan said in an address to a bankers' conference in Mumbai.

"It is important that we streamline and reduce the overlaps between the jurisdictions of the authorities, and specify clear triggers or situations where one authority's oversight is invoked."

Rajan added that banks' boards needed to be empowered to provide proper oversight of banks, suggesting the RBI should withdraw its representative from boards at state-owned lenders and provide a "pure regulatory role", an action that would require a change to current legislation.

Restoring India's state-owned banks to health is vital for Prime Minister Narendra Modi to revive lending, investment and create jobs for the million young Indians who join the labor market each month.

Government-owned lenders account for around 70 percent of lending in Asia's third-largest economy.

Source by Reuters

Are you saving too much for your kids' college?

Economy

Parents these days are expected to pull off a financial Mission: Impossible. Cover the monthly bills, pay down debts, help elderly parents, save for retirement and for kids' college costs, all with incomes that may have been flat for years.

Facing such a demanding feat, here's some advice you may not often hear: When it comes to your kids' college costs, maybe you are doing too much.

To wit, 42 percent of parents are actually losing sleep over college costs, up from 28 percent just two years ago, according to new data from the Parents, Kids & Money survey by Baltimore-based money managers T. Rowe Price.

Of parents surveyed, 57 percent are willing to take on at least $25,000 of college debt on behalf of their kids, and 19 percent are willing to borrow $100,000 or more.

More parents (58 percent) report having college-savings accounts for their kids, rather than retirement savings for themselves (54 percent).

"Parents are more stressed than ever about college costs, they feel guilty about not being able to help more, and many are willing to take on huge debts," says Marty Allenbaugh, a senior marketer for T. Rowe Price.

Their motivation comes from a positive place, of wanting their children to emerge from college debt-free.

But remember that college saving for little Johnny or Janie should not be your top financial priority, or even your second or third. That does not make you a bad parent; it just makes you realistic.

"Like they say in the safety briefing on an airplane, put your own oxygen mask on before assisting others," says Stephanie Genkin, a financial planner from Brooklyn, New York. "That might sound harsh to parents, but it is advice that may save you from a severely underfunded retirement."

Since many parents seem to have their financial priorities backwards, here are a few tips to help turn things around:

FORGET PAYING IT ALL OFF

It is a lovely idea to want your kids to graduate totally debt-free. But realistically, that goal is far out of reach for most families, with just 12 percent on track to pull it off, according to T. Rowe Price.

And it's no wonder. The annual tab for a four-year private college is $32,410, according to The College Board.

Instead of aiming to cover the full freight of tuition and fees, set the bar lower and help with some costs, not all.

MODERATE EXPECTATIONS

The sleepless nights some parents experience may partly be due to their offspring's expectations. An eye-popping 62 percent of kids are counting on their parents to cover every college bill, perhaps because they have not been warned otherwise.

A better tactic: Arrange money conversations early and often. Discuss with your children how they can help with the college costs, including through part-time work, applying for grants and scholarships, and low-interest loans.

RESHUFFLE PRIORITIES

College savings should be far down on your to-do list, according to T. Rowe Price. Saving for retirement, by contrast, should be the top priority. Ideally you should be socking away 15 percent of income, or at the very least, boost the level of your employer's 401(k) match.

Next comes paying off debts like credit cards, the most high-interest ones first. In addition, build an emergency fund to last you at least 3-6 months' worth of living expenses. After all that, you can finally think about college savings.

Saving $300 a month from birth is a useful target to aim for, says Allenbaugh, although even $70 a month for 18 years, assuming a 6 percent rate of return, will still amount to a healthy $25,000 by the time university rolls around.

That will put a major dent in the cost of a four-year public college education for in-state students, which currently comes to $9,410 a year.

RETAIN FLEXIBILITY

Students entering college enjoy some flexibility when it comes to funding their education, including scholarships, grants, loans, work-study programs, and gifts from family members like doting grandparents. They also have a long stretch of life ahead of them, to deal with bills that accrue.

However, if you are a parent who has spent all your money getting your kids through college, your avenues for retirement funding have narrowed precipitously.

Financial planner Scot Stark of Freeland, Maryland, knows one generous couple, ages 69 and 71, who helped get their four kids through college.

They are now staring retirement in the face with a $380,000 outstanding mortgage and only $180,000 in investments.

"You might have to support yourself for 30 years in retirement," says Genkin. "If that's not a case for putting your own retirement ahead of college planning, I don't know what is."

Source by Reuters

5 Things to Know in the Market on Monday

Economy

Here are the top five things you need to know in financial markets on Monday, August 15:

1. Global stocks rise as markets keep an eye on oil

U.S. stock index futures pointed to a marginally higher open on Monday morning, as investors looked ahead to a fresh batch of corporate earnings reports and U.S. economic data, while keeping an eye on oil prices.

Meanwhile, European and U.K. stocks were up in mid-morning trade Monday, with Germany’s DAX turning positive for the year for the first time.

Earlier, Asian shares closed near one-year highs, with markets in China rising sharply on reports that a start date for the Shenzhen-Hong Kong trading link would soon be announced.

2. Oil rallies to 3-week highs on hopes for producer action

Oil prices rallied for the third session in a row in European trade on Monday, hitting a three-week high amid indications major oil producers are reconsidering a collective production freeze in a bid to boost the market.

U.S. crude was up 40 cents, or 0.9%, at $44.89 a barrel during morning hours in New York, while Brent tacked on 38 cents, or 0.81%, to $47.35 a barrel.

According to media reports on Monday, Russia is opening up to an agreement with other major oil producers to freeze output in an effort to stabilize the market.

Crude prices are up nearly 10% so far this month. Sentiment on oil received a leg up after comments from Saudi energy minister, Khalid al-Falih, late last week appeared to lend more credibility to the idea that OPEC might consider taking action to stabilize prices at a meeting in Algeria next month.

3. Japan's economic growth stalled in the second quarter

Japan’s economy nearly stalled in the second quarter amid falling exports and weak capital expenditure, putting even more pressure on policymakers to come up with stimulus measures that produce more sustainable growth.

On a quarter-on-quarter basis, gross domestic product was flat in April-June. The economy, however, grew 0.2% on an annualized basis. Economists had expected a quarterly rise of 0.2% and an annualized increase of 0.7%.

The disappointing data underlined the need for further stimulus to boost growth in the world's third-largest economy in the coming months.

4. U.S. dollar struggles at more than 1-week low

The dollar languished at a more than one-week low on Monday as disappointing U.S. retail sales and inflation data tempered expectations of a near-term interest rate hike by the Federal Reserve.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slumped to a more than one-week low of 95.19 on Friday. It was at 95.64 by early Monday.

Fed funds futures are currently pricing in just a 9% chance of a rate hike by September. December odds were at around 45%.

5. Brexit could be delayed until late 2019

Britain's exit from the European Union could be delayed until late 2019, instead of early that year as expected by some politicians, the Sunday Times reported, citing sources that were briefed by ministers.

According to the report, Theresa May's government is facing several difficulties in triggering Article 50, the formal process of leaving the European Union, with the timetable expected to be pushed back because her new Brexit and international trade departments will not be ready in time.

The pound dipped to a fresh one-month low of 1.2902, falling back towards a post-Brexit trough of 1.2794.

Source by Investing.com

Euro zone Q2 GDP rises 0.3%, in line with forecasts

Economy

Gross domestic product (GDP) in the euro zone rose as expected in the second quarter, according to preliminary official data released on Friday.

In a report, Eurostat said that GDP rose a seasonally adjusted 0.3%, compared to growth of the same amount in the preceding quarter and bang in line with consensus forecasts.

Year-on-year, GDP in the single currency bloc rose 1.6% in the second quarter, matching both the expansion in the first three months of the year and the forecast.

The euro zone data was released after Germany, the engine of its economy, surprised earlier on Friday with growth of 0.4%, compared to the 0.2% increase expected.

Immediately after the release, EUR/USD was trading at 1.1151, compared to 1.1156 ahead of the report, while EUR/GBP was at 0.8609 from 0.8611 earlier.

Meanwhile, European stock markets were trading mixed. The Euro Stoxx 50 dropped 0.07%, Germany's DAX fell 0.35%, France’s CAC 40 lost 0.15%, while London’s FTSE 100 rose 0.12%.

Source by Investing.com

Germany’s Economy

Economy

Germany’s Wholesale Price Index 0.2% vs. 0.3% forecast

Germany’s wholesale price index rose less-than-expected last month, official data showed on Friday.

In a report, Destatis said that Germany’s Wholesale Price Index rose to 0.2%, from 0.6% in the preceding month.

Analysts had expected Germany’s Wholesale Price Index to rise 0.3% last month.

German GDP 0.4% vs. 0.2% forecast

Germany’s gross domestic product rose more-than-expected in the last quarter, preliminary official data showed on Friday.

In a report, Statistisches Bundesamt Deutschland said that German GDP rose to a seasonally adjusted 0.4%, from 0.7% in the preceding quarter.

Analysts had expected German GDP to rise 0.2% in the last quarter.

German CPI 0.3% vs. 0.3% forecast

German consumer price inflation rose last month, official data showed on Friday.

In a report, Federal Statistical Office Germany said that German CPI rose to a seasonally adjusted 0.3%, from 0.3% in the preceding month.

Analysts had expected German CPI to rise 0.3% last month.

Source by Investing.com