This Week
There are a number of key economic releases but the major focus this week is Bernanke testifying in the House and Senate on the economy, employment and inflation. Likely he will field a lot of questions from politicians about what the Fed intends to do with its QEs and more grilling on the state of the economy and unemployment that refuses to subside. He goes before the House Financial Services Committee on Wednesday and then to the Senate’s Banking Committee on Thursday. At this moment markets continue to lean towards the Fed beginning to taper as soon as September but Bernanke is keeping markets on edge by changing his tune from one speech to another.
Economic data this week includes June retail sales on Monday, June CPI, June reports on industrial production and factory use, and June housing starts and permits. The technical picture in the bond and mortgage markets remains bearish, although last week both markets saw nice rebounds from the week prior. We expect markets will trade in narrow ranges early this week ahead of Bernanke. Until the 10-year note can close below 2.50%, the outlook is still bearish. It isn’t wise now to anticipate that interest rates will decline much. Maybe Bernanke can swing the outlook to a more positive outlook, but if that were to occur he would have to imply the Fed will not begin tapering until next year.