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 The economic figures will culminate in Friday’s jobs report that
should reveal more about the strength of the U.S. economy. Car
sales, construction spending, the Federal Reserve's "beige book" and
jobs growth may show the economy is strong enough to withstand the
first rate hike in nearly a decade from the Federal Reserve, despite
worries about a hard landing for China’s economy.
Global stock markets were stung by severe swings in recent weeks,
stoked by concerns that a slowdown in China's economy may be more
harsh than anticipated.
But after confirming a move into correction territory, the S&P 500
rebounded to score its best two-day percentage gain in over six
years this week, as comments from Fed officials led some investors
to believe the market turmoil and global growth concerns had
diminished the possibility of a rate hike at the central bank's
September meeting.
A September rate increase hasn't been ruled out, however. Fed Vice
President Stanley Fischer told CNBC during the Fed's annual
conference in Jackson Hole, Wyoming, that the committee was "heading
in the direction" of higher rates. Traders in futures markets that
bet on rate increases boosted September's odds after his words.
"There is a narrative out there that Yellen’s Fed is looking for a
reason to delay the rate hike; I don’t think that is necessarily the
case," said Brad McMillan, chief investment officer for Commonwealth
Financial in Waltham, Massachusetts.
"If we continue this run of strong data and if the market keeps
coming back or at least doesn’t keep dropping, that makes September
more likely."
After a stronger-than-expected revision to second quarter gross
domestic product and solid durable goods figures, another run of
strong data next week could bolster the case for a rate increase
next month. As of early August, most U.S. primary dealers polled
expected a September rate increase.
But traders also are also mindful of the fact that the Chinese
slowdown could hit U.S. companies and their shares
disproportionately in the second half of the year, with luxury goods
companies and industrials among the groups paying a price.
Thomson Reuters data shows third-quarter earnings expectations have
dropped 6.4 percent for the industrial sector and 8.8 percent for
the materials sector since July 1.
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Should analysts continue to downgrade their expectations for third-
and fourth-quarter earnings in those sectors or more broadly, that
could make stocks more expensive, even after the recent selloff.
"It is more important to the U.S. whether or not GM and Ford can
sell cars there," said Kim Forrest, senior equity research analyst,
Fort Pitt Capital Group in Pittsburgh.
"That is probably what a softening of the Chinese economy could
affect and it factors into the earnings of these companies."
Should next week's data show the U.S. economy continues to slowly
improve, market volatility is likely to remain as investors grapple
with the possibility of a September hike and its ramifications for
risk assets.
"Markets and investors were nervous anyway about this normalization
anyway after years without a raise," said Peter Kenny, chief market
strategist at Clearpool Group in New York.
"If we were not in a position where markets are as jittery as they
are as a result of the China deceleration story, it would be fair to
say a rate move of 25 basis points would be able to be managed by
the world’s largest economy."
(Reporting by Chuck Mikolajczak; Editing by Meredith Mazzilli)
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