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War, Oil, Bond Market Jitters to Test Markets and Economy Heading Into Holiday Season

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With two wars, a rising price of oil and a shaky bond market, there is plenty of worry for the markets and economists this week, including a slew of corporate earnings reports and data on the state of the housing market and retail spending. The TV channels are already showing Christmas ads and much of the East Coast is pulling out the sweaters, but Tuesday affords a look back to September retail sales. Analysts expect the report to show a 0.3% monthly increase, but at this point what happens between now and the end of the year typically the most important time of the year for retailers will be key to the health of the industry.

But eyes are also on the wars in the Mideast and Ukraine. Gaza remains under threat of an imminent ground invasion by Israel in response to the surprise attack on Oct. 7 by the Palestinian militant group Hamas. The U.S. has sent two aircraft carrier groups to the region as a show of support to Israel but also as a stern warning to others such as Iran and Hezbollah in Lebanon.

Meanwhile, Russia has been pressing its invasion of Ukraine that is now a year and a half old. Aid to Ukraine is currently facing an uncertain future while the House remains without a permanent speaker. And the price of oil is rising, hitting $90 early Monday. Last week ended with a surprise increase in consumer’s expectations of inflation in the University of Michigan’s sentiment survey. That could suggest a pullback by consumers as the critical holiday season gets underway.

“In the meantime, a deterioration in consumers’ sentiment would weigh down on their willingness to spend, particularly in an environment of restrictive monetary policy,” BCA Research said on Monday. “While the resilient labor market could support consumption over the near term, employment conditions are loosening and will likely evolve into a recession in 2024.”

Also Tuesday, the National Association of Home Builders releases its monthly survey of builder confidence for October. Expectations are the number will dip slightly from September’s reading of 45, below the 50 threshold that signals a positive sentiment. Where new home construction a few months ago was holding up the housing market, now it has slumped amid mortgage rates that have brushed 8%. Wednesday brings reports on housing starts and permits, with the former likely to have increased modestly and the latter dropping a bit.

The Federal Reserve’s “beige book” survey of regional economic conditions is scheduled to be released later Wednesday, but last week the central bank issued the summary of the minutes of its September meeting. That showed the economy doing better than had been expected. The Federal Reserve Bank of Atlanta updates its GDPNow model on Tuesday; the last reading forecast that gross domestic product will increase at an annual rate of 5.1% in the third quarter. That number is expected to come down, but it is still a strong forecast.

On Thursday, the National Association of Realtors will report existing home sales for September with observers expecting a drop of 4% from August as elevated mortgage rates and low inventory crimp the housing sector. The Conference Board’s leading economic index for September is also out on Thursday and another decline if forecast, this time by 0.4% from August. The index, often viewed as a predictor of economic downturns, has been flashing recession signals for more than a year even as the economy has remained resilient.

Markets will also be watching Fed Chairman Jerome Powell when he speaks to the Economic Club of New York on Thursday at noon. It will be his first chance to talk following the release of the Fed minutes last week, and analysts will be keying in on any comments that show his hand ahead of the November meeting in a couple of weeks.

“We suspect Chair Powell will continue to walk the fine line between signaling a willingness to wait and not raise rates at the November FOMC meeting, though also note that if the labor market and inflation data do not cool, the FOMC would be prepared to raise rates (likely at their December meeting), if appropriate,” Sam Bullard, managing director and senior economist at Wells Fargo’s corporate and investing unit, wrote on Sunday.

The firm published its monthly economic outlook last week and did not include any more Fed rate hikes in the current cycle. On the earnings front, Johnson & Johnson, Bank of America, Tesla and Netflix are among the highlight names reporting results. Last week, JPMorgan Chase and Wells Fargo led off the earnings season with strong results.

Source: US News

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