Market Perspective for August 20, 2018

This will be a light week for economic data. Existing home sales for July will be out on Wednesday, followed by new home sales on Thursday. Analysts expect an annualized 5.41 million existing sales and an annualized 641,000 in new home sales.

The minutes from the July Federal Open Market Committee meeting will be released at 2 PM on Wednesday. The Fed held rates steady in July but shifted its policy statement in a slightly hawkish direction. Odds of a September rate hike stand at 94 percent coming into this week, and odds of another hike in December sit at 65 percent.

Flash manufacturing PMIs for August should show a robust expansion in the United States. Economists will focus on foreign PMIs and Europe’s decelerating growth.

The U.S. dollar hit a new 52-week high last week before pulling back. The key levels to watch in the week ahead are 95 and 96.61. The former marked resistance from late May through August, and if the U.S. dollar is breaking out it should stay above it. The latter number is the high from last week. Speculators are more bullish on the U.S. dollar than at any time in the past 15 months.

Long-term bonds look vulnerable to a short-squeeze rally, one that could further lift the U.S. dollar amid weakness in emerging markets. The 10-year yield came into the week at 2.87 percent, the lower end of a nearly seven-month trading range that stretches from 2.7 to 3.1 percent.

Crude oil fell to a $65 handle last week. A surprisingly large inventory buildup sent prices $2 lower on Tuesday and Wednesday. West Texas Intermediate crude hasn’t traded below $64 since April.

Earnings season is winding down, but retail earnings season will continue to pour in this week. Smaller retailers will follow last week’s strong earnings from Home Depot (HD) and Wal-Mart (WMT) that pushed SPDR S&P retail (XRT) to a new 52-week high. Some of the larger firms reporting this week will include Kohl’s (KSS), Lowe’s (LOW), Target (TGT), L Brands (LB), Williams-Sonoma (WSM), Gap (GPS), Ross Stores (ROSS) and Footlocker (FL).

Estee Lauder (EL), BHP Billiton (BHP), Medtronic (MDT), Analog Devices (ADI), Alibaba (BABA), Autodesk (ASDK), Intuit (INTU), HP Inc (HPQ) will also report this week.

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