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Fed speakers could give stocks another jolt

August retail sales could answer a lot of questions for markets — but more important will be a flurry of Fed speakers.

At the top of the list is Fed Gov. Lael Brainard, who speaks in Chicago Monday. After the hawkish comments of Boston Fed President Eric Rosengren Friday, traders are watching to see if she will stay firmly in the dovish camp, and as for Thursday's retail sales, it is the most important data the Fed will see before it meets on Sept. 20.

Many economists have been expecting the Fed will stay on the sidelines at its September meeting, and December is viewed as more likely for the Fed's second rate hike in 10 years.

Brainard is "someone inside the Yellen circle who tends to want to wait. It will be interesting to see how cautious she is," said Diane Swonk, CEO of DS Economics.


Stocks sold off sharply and bond yields snapped higher Friday, after Rosengren's comments. But Swonk said the market ignored a second Fed speaker, Fed. Gov. Daniel Tarullo, who appeared on CNBC Friday.

"What Rosengren said is nothing new. Rosengren wanted a September rate hike," said Swonk. "We've heard from Dan Tarullo in the inner circle and he's consistent with the view to be more dovish. He's not opposed to a rate hike this year but he would be for December. (The markets) allowed Rosengren to trump Tarullo, and Brainard has an even greater sway in Yellen's inner circle."

Fed Chair Janet Yellen and two other Fed officials viewed as being close to the chair — New York Fed President William Dudley and Fed Vice Chair Stanley Fischer — all pushed the idea during the week of their Jackson Hole conference that the Fed was close to hiking rates, possibly even in September.

But that was before a disappointing batch of August economic data. August's weaker than expected job growth came in at 151,000, 30,000 below expectations. On top of that, ISM manufacturing showed actual contraction in the sector and ISM non-manufacturing showed a surprise slowing of services sector growth.

There are other Fed speakers, including Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Neel Kashkari, both on Monday.

All of that Fed speak puts the focus on the final pieces of important data ahead of the Fed's September meeting. That would be mainly retail sales, and also the producer price index on Thursday and the consumer price index Friday. Economists have been waiting to see whether the consumer is holding up, after strong consumer spending in the second quarter, but recent weakness in auto sales and ISM service sector activity.

"Retail sales will certainly be important for the Fed. We get industrial production too which is likely to be lousy," Swonk said. "Core retail sales should still be good outside of autos." Core sales, excluding auto sales and gasoline, are expected to be up 0.3 percent. Auto sales slowed in August but are still running at a pace greater than 17 million annual sales.

Stormy skies lightening
Robert Postma | Getty Images

Stocks fell more than 2 percent Friday to end the week sharply lower, with the Dow Jones industrial average off 2.2 percent for its worst week since January 8. The S&P 500 had its worst week since February 5, dragged down by a nearly 4 percent decline in consumer staples. Only the energy sector held gains, as oil rose 3.2 percent for the week to settle at $45.88 a barrel Friday.

Markets were back to work after a dull August of trading, and there was a $40 billion plus burst of corporate bond issuance that strategists expect to see continue.

But in the stock market, the push and pull debate continues about whether there is a seasonal pull back coming in the near term especially now that the market fears interest rate hikes.

Jack Ablin, CIO of BMO Private Bank, said he expects stocks to remain choppy, as the market sorts through the idea of a potential Fed hike

"I think this is what withdrawal looks like for an addict," said Ablin. "I would still view it as an opportunity to buy instead of getting out of the market altogether."

"It's hard to know," whether the Fed would actually hike in September, said Ablin. "They tend to look at, even though the stock market could be upset, they tend to look at credit markets. Even though yields are up, spreads are OK."

"We just think that now is the time," said Julian Emanuel, equity and derivative strategist at UBS. Emanuel made his comments Thursday, before the market sell off Friday. "We're not calling for the end of the seven-and-a-half year bull market, but what we think is it's likely that you're going to have over the next couple of months is a spike in volatility, along the lines of what you've seen on numerous occasions over the last year and a half. It will ultimately be a buying opportunity."

Strategists say the market could become more concerned about the presidential election in the next several weeks.

"The market is not reflecting the idea that the price of uncertainty should be higher," Emanuel said.

What to watch

Monday

8:05 a.m. Atlanta Fed President Dennis Lockhart

1:00 p.m. Minneapolis Fed President Neel Kashkari

1:00 p.m. Federal Reserve Governor Lael Brainard

1:00 p.m. 3-Yr Note Auction

1:00 p.m. 10-Yr Note Auction

Tuesday

6:00 a.m. NFIB survey

1:00 p.m. 30-Yr Bond Auction

2:00 p.m. Federal budget

Wednesday

8:30 a.m. Import prices

Thursday

8:30 a.m. Initial claims

8:30 a.m. Retail sales

8:30 a.m. PPI

8:30 a.m. Empire State survey

8:30 a.m. Philadelphia Fed

8:30 a.m. Current account

9:15 a.m. Industrial production

10:00 a.m. Business inventories

Friday

8:30 a.m. CPI

10:00 a.m. Consumer sentiment

4:00 p.m. TIC data