Week ahead: Will emerging markets tank US investors?

Forget about the NASDAQ trading suspension. The big story of last week was (and will continue to be this week), emerging markets. During a slow summer week, attention turned away from the US and towards India, Indonesia, Turkey and Brazil. These once-sizzling markets are suffering large currency declines, which have prompted many of their central banks to announce intervention efforts to prop them up.

Guess who’s to blame for the foreign fiasco? Yes, the US central bank chief Ben Bernanke is the goat once again. Emerging markets had been big beneficiaries of the Fed’s low interest rate policies since the financial, as yield-hungry investors sought better opportunities than the zero percent US environment. So in May, when Bernanke said that the Fed might taper its bond purchases, it also meant that many of those emerging market investors would yank their funds and return to the US.

Indeed, many have had enough of the international roller coaster. Since the beginning of June, retail investors have withdrawn $18.1 billion dollars from emerging market bond funds, about one-third of the amount they had put in since the era of low interest rates began since the financial crisis (WSJ). Adding to the pain, institutional investors have pulled about 10 percent of their pre-crisis investments. The anxiety is seeping into all global markets. Last week, stock exchange-traded funds and global equity funds saw their first net outflows in eight weeks and the largest in five years.

Chances are, the nerves will persist until the Fed pulls the taper trigger, perhaps as early as the mid-September meeting. Until then, investors who remain in town this week will keep an eye on the Durable Goods Orders report and the first revision to Q2 GDP, which most expect to increase to 2.2 percent from the originally-reported 1.7 percent. The strengthening economy would help the Fed’s case for tapering sooner rather than later.

MARKETS: US stock indexes were mixed on the week and many expect another low volume, pre-holiday week ahead.

• DJIA: 15,010, down 0.5% on week, up 14.5% on year
• S&P 500: 1663, up 0.5% on week, up 16.6% on year
• NASDAQ: 3657, up 1.5% on week, up 21.1% on year
• 10-Year Treasury yield: 2.82% (from 2.83% a week ago)
• Oct Crude Oil: $106.42, down 0.8% on week
• Dec Gold: $1395.80, up 1.7% on week
• AAA Nat'l average price for gallon of regular Gas: $3.54

THE WEEK AHEAD:

Mon 8/26:

8:30 Durable Goods Orders

10:30 Dallas Fed Mfg Survey

Tues 8/27:

9:00 S&P Case-Shiller Home Price Index

10:00 Consumer Confidence

10:00 Richmond Fed Manufacturing Index

Weds 8/28:

10:00 Pending Home Index

Thurs 8/29:

8:30 Weekly Jobless Claims

8:30 GDP (2nd estimate)

8:30 Corporate Profits

Fri 8/30:

9:00 Personal Income and Outlays

9:45 Chicago PMI

9:55 Consumer Sentiment

Week ahead: Taper Tantrum Continues

“Tempus fugit” (time flies)…It was just three months ago on May 22nd, when Federal Reserve Chairman Ben Bernanke suggested that the central bank could change its policies “in the next few [FOMC] meetings,” depending on prevailing economic data. Over the ensuing 90 days, investors have dissected every economic report, trying to figure out whether it would provide the Fed with proof that the economy is strong enough to withstand reduced intervention. It got so bad last week, that a weekly jobless report seemed to trigger a 1.5 percent one-day sell-off in stocks. Got that? A weekly report, for goodness sake!

This week, investors will seek further clarification and/or clues about the Federal Reserve’s plans to taper its $85 billion per month bond-buying program at the upcoming policy meeting September 17-18. The minutes of the late July FOMC meeting, due on Wednesday, will be a precursor to the Fed’s annual Jackson Hole retreat at the end of the week. Skipping the party this time will be a certain current Fed Chairman. Because Bernanke will not attend, the event may not be quite as impactful as in previous years.

While some investors think that the central bank will wait until its December meeting to make a move, the bond market is acting like tapering has already occurred. The yield on the 10-year Treasury note settled at 2.83 percent on Friday, the highest level in two years. The jump in rates has made some nervous about the housing recovery. Despite a full percentage point rise in mortgage rates, data indicate that activity and price increases could slow, but the recovery should remain intact.

A word about energy prices: the turmoil in Egypt is likely creating investor anxiety and a corresponding rise in oil prices, but a reminder that since the Arab Spring, there have not been disruptions to the flow of oil and gas through the Suez Canal or Suez-Mediterranean (Sumed) Pipeline.

MARKETS: Stocks are down 3-4 percent from all time nominal highs, reached on August 2.

• DJIA: 15,082, down 2.2% on week, up 15% on year
• S&P 500: 1655, down 2.1% on week, up 16.1% on year
• NASDAQ: 3602, down 1.6% on week, up 19.3% on year
• 10-Year Treasury yield: 2.83% (from 2.48% a week ago)
• Sep Crude Oil: $ 107.46, up 4.5% on week
• Dec Gold: $ 1371, up 4.5% on week
• AAA Nat'l average price for gallon of regular Gas: $3.54

THE WEEK AHEAD:

Mon 8/19:

Tues 8/20:

8:30 Chicago Fed National Activity Index

Weds 8/21:

10:00 Existing Home Sales

2:00 FOMC Minutes 

Thurs 8/22:

8:30 Weekly Jobless Claims

8:58 PMI Manufacturing Index Flash

9:00 FHFA House Price Index

Fri 8/23:

10:00 New Home Sales