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Investing.com - This week investors will be watching to see how the Federal Reserve may respond to recession fears whipped up by the inversion of the Treasury yield curve.
The Fed will hold its annual gathering in Jackson Hole towards the end of the week, with Chairman Jerome Powell to address the forum on Friday. The Fed will publish the minutes of its July meeting, when it cut interest rates for the first time since the financial crisis, on Wednesday.
That, along with European Central Bank minutes, economic data and earnings will offer investors plenty to mull over. Here’s what you need to know to start your week.
On Thursday, Fed officials will be gathering in Jackson Hole, Wyoming, for an annual summit that will be scrutinized by investors for any indications on the future path of monetary policy. The highlight of the forum will be a speech by Fed Chair Jerome Powell on Friday.
Markets have already priced in a quarter-point interest rate cut in September, now that the long-awaited inversion of the two-year/10-year Treasury yield curve has actually happened. However it’s not clear whether the Fed could still be tempted to move more aggressively to ward off a potential economic downturn against the backdrop of escalating trade tensions between the U.S. and China.
The U.S. central bank is to publish the minutes of its July meeting on Wednesday, which will reveal the strength of support for its first rate cut in more than a decade. Powell described it as a “mid-cycle adjustment,” rather than the start of a major easing cycle.
The decision was not unanimous, with two FOMC members voting against a rate cut citing signs of strength in the economy, but given what has transpired in bond and stock markets since that meeting policymakers may now be considering whether ‘insurance’ rate cuts could become a full easing cycle.
The ECB will release the minutes of its July meeting on Thursday. That meeting saw policy remain unchanged, but the ECB did adjust its forward guidance to indicate that rates could go lower, laying the groundwork for a September cut. The ECB also indicated that it could revive its quantitative easing program the coming months.
Ahead of the minutes, investors will get an update on the health of the euro zone’s manufacturing and service sectors. PMI data from Germany will be closely watched after the euro area’s largest economy contracted in the second quarter, fueling fears over the prospect of a recession.
The U.S. economic data calendar is light this week with reports on existing home sales and new home sales (both supported by firm consumer confidence, rising wages and falling mortgage rates) the main releases to watch.
Canada is due to release reports on inflation, retail sales and manufacturing this week ahead of its revised estimate on second quarter GDP coming up next week.
Retail earnings will continue this week with big box retailer Target (NYSE:TGT) and home improvement chain Home Depot (NYSE:HD) due to report quarterly results. Lowe’s (NYSE:LOW), Kohls (NYSE:KSS) and TJX (NYSE:TJX) are among some of the other retailers also releasing figures that will offer investors insights into how consumer spending is holding up.
Last Thursday industry giant Walmart (NYSE:WMT) boosted its earnings forecast for the rest of the year and reported an estimate-beating jump in second-quarter U.S. comparable sales. That, along with an upbeat report on U.S. retail sales helped ease some fears that the economy was heading into recession against the backdrop of trade tensions and slowing growth overseas.
--Reuters contributed to this report
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