Its Fed's turn now after European Central Bank's Mario Draghi announced last week new outright monetary transactions or purchases of sovereign bonds of 1 to 3 year maturities. The program is unlimited in the sense no quantitative limits are set on the size of transactions. That said, the program is conditional on an EFSF program and can take the form of a full program or a precautionary program that includes the possibility of EFSF/ESM primary market purchases. The central bank also eased collateral rules, namely the suspension of the minimum rating threshold for countries with an OMT or a EU-IMF program.
Outside of Friday's jobs data, the U.S. labor market statistics have been fairly benign. Even if QE III is announced, Dankse Bank believes that it will be closely tied to economic data, making the size and scope of asset purchases conditional on the pace of recovery in order to accommodate concerns of hawkish committee members. Any potential augmentation of stimulus could be more gradual than the previous program, with ongoing evaluation from meeting to meeting.
Last week, the Labor Department reported that monthly non-farm payrolls numbers rose a weaker than expected 96,000 in August. July's reading was downwardly revised to 141,000 from the 163,000 growth initially estimated. Private sector job growth also slowed to 103,000 in August from 162,000 in July. The decline in labor force participation rate led to a drop in the jobless rate to 8.1 percent. While the average duration of unemployment rose to 39.2 months, average hourly earnings rose 1.7 percent year-over-year, although remaining flat with July.
The U.S. manufacturing sector continued to contract for the third straight month in August. The manufacturing index based on the Institute for Supply Management's survey came in at 49.6 in August compared to 49.8 in July. The new orders index fell 0.9 points to 47.1, the lowest level since April 2009, while the order backlogs index slid to 42.5. The employment index was down 0.4 points to 51.6. Of the 18 industries surveyed, 8 reported growth and 8 saw contraction, while the remaining 2 saw little change.
Meanwhile, the Institute for Supply Management's service sector survey showed that activity in the sector expanded at a faster rate in August. The non-manufacturing index based on the survey rose 1.1 points to 53.7. The employment index rose 4.5 points to 53.8 and the order backlogs index rose 6 points to 50.5, while the business activity index slipped 1.6 points to 55.6 and the new orders index edged down 0.6 points to 53.7. Of the 18 industries surveyed, 10 reported growth, 5 reported contraction and the remaining 3 reported no change.
The Commerce Department said construction spending fell 0.9 percent month-over-month in July compared to the 0.4 percent growth expected by economists. June spending was left unrevised at 0.4 percent, while May's reading was upwardly revised to show 1.7 percent growth compared to the initially estimated 1.6 percent growth. Residential construction spending fell 1.6 percent and private non-residential spending declined 0.9 percent, while public spending was down 0.4 percent.
The FOMC meeting takes the center stage in the unfolding week, as traders look ahead to Fed Chairman Ben Bernanke to emulate his counterpart at the European Central Bank. Traders may also watch the Commerce Department's retail sales report for August, the Federal Reserve's industrial production report for August, the weekly jobless claims report and the results of a consumer sentiment survey for September by Reuters and the University of Michigan.
The Federal Reserve's consumer credit report for July, the Commerce Department's trade balance report for July, the Labor Department's import and export price indexes for August, the Labor Department's producer and consumer price inflation reports for August and a couple of Fed speeches may also draw some attention. The Commerce Department's wholesale and business inventories reports for July, the Treasury Budget for August and Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
Most economists do not expect the Fed to announce additional quantitative easing at the September meeting. Some like BMO Capital Markets expects the central bank to extend the period of policy rate guidance to at least well into 2015 from the current timeframe of at least through 2014. The belief is based on the argument that the "Operation Twist" program is set to continue until the end of the year.
Retail sales are expected to show a strong increase in August, helped by strong auto sales and a surge in gas prices. Even excluding autos and gasoline, retail sales may have remained healthy, given anecdotal evidence of decent back-to-school outlays.
Industrial production is expected to reveal weakness, as the soft patch stifles the factory sector. The national manufacturing survey of the Institute for Supply Management showed that the production index fell below the key '50' level for the first time since May 2009 in August, suggesting that firms are cutting production than raising it.
Monday
The U.S. Federal Reserve is scheduled to release its monthly consumer credit report at 3 pm ET. Consumer credit for July is expected to show an increase of $9.8 billion.
Outstanding consumer credit rose by $6.5 billion or 3 percent on a seasonally adjusted annual basis in June. Revolving credit tied to credit cards slipped by $3.7 billion, while non-revolving credit associated with auto loans rose by $10.2 billion.
Tuesday
The trade gap data for July is due out at 8:30 am ET. Economists estimate that the trade gap widened to $44.3 billion in the month. The trade gap measures the difference between imports and exports of both tangible goods and services.
In June, the U.S. trade deficit narrowed to $42.9 billion, as exports rose 0.9 percent to a record high of $185 billion, while imports were down 1.5 percent. The real trade deficit also narrowed and therefore net trade is likely to give support to the overall growth in the second quarter.
Wednesday
A 2-day FOMC meeting is scheduled to begin on Wednesday.
The export & import price indexes for August, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 am ET. The consensus estimates call for a 1.5 percent month-over-month increase in import prices and a 0.5 percent rise in export prices.
Export prices rose 0.5 percent month-over-month in July compared to a 0.6 percent drop in import prices. The consensus estimates had called for a 0.2 percent month-over-month decline in import prices and a 0.1 percent decline in export prices.
The Commerce Department is due to release its wholesale inventories report at 10 am ET. Economists expect wholesale inventories at the end of July to show a 0.4 percent increase.
Wholesale inventories fell 0.2 percent month-over-month in June, while inventories were up 5.3 percent year-over-year. Wholesale sales fell 1.4 percent month-over-month but were up 3.1 percent from last year. Accordingly, the inventories to sales ratio was at 1.20 compared to 1.17 in the year-ago period.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended September 7th at 10:30 AM ET.
Crude oil stockpiles fell by 7.4 million barrels to 357.1 million barrels for the week ended August 31st. Crude oil stockpiles dropped to near the upper limit of the average range.
Gasoline stockpiles declined by 2.3 million barrels and were in the lower half of the average range. Meanwhile, distillate inventories rose by 1 million barrels but were below the lower limit of the average range. Refinery capacity utilization averaged 90.3 percent over the four weeks ended August 31st compared to 91.9 percent over the previous four weeks.
Thursday
The Labor Department is due to release its customary jobless claims report for the week ended September 8th at 8:30 AM ET. Economists expect claims to increase to 370,000 from 365,000 in the previous week.
Initial claims for unemployment benefits fell by 12,000 to 365,000 in the week ended September 1st, according to a Labor Department report. The previous week's reading was upwardly revised by 3,000 to 377,000. At the same time, the four-week average rose to 371,300 and continuing claims for the week ended August 27th fell to 3.32 million.
The U.S. Labor Department is scheduled to release its report on the producer price index for August at 8:30 am ET. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for August to have risen by 1.4 percent, while core consumer prices may have risen by a more modest 0.2 percent.
Producer prices rose 0.3 percent month-over-month in July, while on a year-over-year basis, prices were up an unadjusted 0.5 percent. Core producer prices climbed 0.4 percent, the biggest increase since the start of the year. Food prices were up 0.5 percent but energy prices fell 0.4 percent.
The Federal Open Market Committee, the monetary policy-setting arm of the Federal Reserve, is due to release the post-meeting policy statement at 12:30 am ET, followed by the release of the FOMC forecasts at 2 pm ET. Chairman Ben Bernanke will hold a press briefing at 2:15 pm ET.
At the July 31st-August 1st meeting, the FOMC did not announce any radical measures despite the economic struggles. The meeting's statement f showed that the Fed's assessment of economic conditions worsened. The August statement acknowledged the deceleration in economic activity when compared to the first half of the year. The Fed's commentary and outlook on other segments such as the job market, inflation and consumer spending were the same as at the previous meeting.
While maintaining interest rates at 0-0.25 percent and voicing its opinion of the need to maintain the extremely accommodative monetary policy environment at least through late 2014, the committee said it will closely watch incoming information on economic and financial developments. This in contrast to the June statement, which said the committee is prepared to take further action.
Federal Reserve Governor Sara Bloom Raskin is due to speak at the 67th Annual National Conference on Citizenship, on "Exploring the Link Between Civic Engagement and Employment" in Philadelphia at 1:45 pm ET.
The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $160 billion for August compared to a deficit of $69.6 billion for July
Friday
The consumer price index for August is scheduled to be released at 8:30 am ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists expect the headline index to have risen by 0.6 percent and the core reading by 0.2 percent.
U.S. consumer prices remained unchanged in July compared to the previous month. Food prices were up merely 0.1 percent and energy prices declined 0.3 percent, dropping for the fourth straight month. Excluding food and energy, prices were up a milder than expected 0.1 percent.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 am ET. For August, economists estimate a 0.8 percent increase each in retail sales and excluding autos sales.
In July, U.S. retail sales rose 0.8 percent month-over-month, marking the first increase since March. June's decline was downwardly revised to -0.7 percent from -0.5 percent. Auto sales rose 0.8 percent despite unit sales drop in unit sales. Excluding autos, retail sales growth was 0.8 percent. Core retail sales, which strip off autos, gasoline and building materials and are used for GDP calculations, climbed 0.9 percent. All categories saw sales growth in July compared to the previous month.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate a 0.1 percent drop in the industrial production performance for August, while manufacturing output is estimated to have increased by 0.2 percent. Capacity utilization may edged down by 0.2 points at 79.2 percent.
Industrial output rose 0.6 percent month-over-month in July, marking, the fourth straight month of gains. That said, June's growth was downwardly revised to 0.1 percent from the 0.4 percent growth initially estimated. Manufacturing output climbed 0.5 percent, the same pace as in June, mining output was up 1.2 percent and utilities output was 1.3 percent higher. Reflecting the shorter summer shut downs, motor vehicle and parts output rose 3.3 percent. Capacity utilization edged up 0.4 percentage points to 79.3 percent, the highest in four years.
The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for September is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to have edged down to 73.5 from 74.3 in the previous month.
The Commerce Department is scheduled to release its business inventories report for July at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.5 percent increase in business inventories for the month.
Business inventories at the end of June were up 0.1 percent from the previous month, while business sales slipped 1.1 percent. On a year-over-year basis, business inventories and business sales were up 5 percent and 3 percent, respectively. The business inventories to sales ratio was at 1.29 compared to 1.26 in the year-ago period.
Atlanta Federal Reserve Bank President Dennis Lockhart is scheduled to deliver welcoming remarks to the Bank's Center for Human Capital Studies conference on "employment Consequences of the Great Recession" at 1 pm ET.
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