Economic Update 07/14/14

FED PLANS TO STOP EASING THIS FALL

June’s Federal Reserve policy meeting minutes outlined the central bank’s exit plan from QE3. The Fed will continue tapering its monthly asset purchases in a series of $10 billion cuts, then make a last $15 billion cut in late October. The June minutes offered no hint of change on interest rates; Fed officials are widely expected to adjust short-term rates in 2015. The Fed actually lessened its medium-term inflation forecast, and the minutes showed general agreement for reinvesting proceeds from maturing bonds until a rate hike occurs.

U.S. BUDGET DEFICIT COULD BE SMALLEST IN 6 YEARS

According to the Congressional Budget Office, the federal deficit totaled $366 billion nine months into the current fiscal year – a 28% reduction from the previous year. (Chalk that up partly to federal tax receipts increasing 8% for FY 2014.) The CBO sees a $492 billion federal deficit for the full budget year ending Sept. 30.

OIL DIPS BELOW $101 AS SUPPLY FEARS DIMINISH

Futures dropped 3.1% last week, closing at $100.83 Friday on the NYMEX. Risks to supplies in Iraq and Libya lessened, and American crude inventories expanded.

BANK STRESS IN EUROPE HELPS SEND STOCKS SOUTH

When the parent company of Portuguese lender Banco Espirito Santo missed debt payments last week, a blip of anxiety about eurozone banks hit the market. That contributed to the following weekly performances: S&P 500, -0.90% to 1,967.57; DJIA, -0.73% to 16,943.81; NASDAQ, -1.57% to 4,415.49.

THIS WEEK: Citigroup, M&T Bank, SuperValu, Charles Schwab, Piper Jaffray, Safeway and American Airlines announce earnings on Monday. On Tuesday, Janet Yellen begins two days of Senate testimony on Fed monetary policy; earnings from CSX, Cintas, Goldman Sachs, Comerica, JPMorgan Chase, Johnson & Johnson, Yahoo! and Intel appear along with June retail sales numbers. Quarterly results from BlackRock, Bank of America, US Bancorp, PNC Financial, East West Bancorp, Kinder Morgan, SanDisk, Yum! Brands, Northern Trust and Abbott Labs arrive Wednesday, plus a new Fed Beige Book, June’s PPI and numbers on June industrial output. Thursday offers earnings from Google, Mattel, Morgan Stanley, AutoNation, Capital One, Sherwin-Williams, Philip Morris, Snap-On, Alliance Data Systems, Seagate, Fifth Third and IBM, in addition to data on initial claims and June housing starts and building permits. Friday, the preliminary July University of Michigan consumer sentiment index arrives, along with the Conference Board’s June leading indicator index and quarterly results from GE, Bank of NY Mellon and Honeywell.