Gold Isn't Glittering, the Economy Is

This week, the Federal Reserve will convene a two-day policy meeting, where it is expected to do a whole lot of nothing, except tell us that we should be prepared for short-term interest rates to rise from the current range of 0 - 0.25 percent. Rates have been at these “emergency” levels since December 2008 and it has been more than nine years (June 29, 2006) since the Fed has increased the Federal Funds rate. At that time the central bank increased rates by 0.25 percent to 5.25 percent. Although the Fed is not likely to act at this meeting, officials must be pleased to see that data are improving. After a rough winter, existing home sales are now up to pre-recession levels and prices are marching higher as well. The new home sales report was below expectations, but through June, sales are still up solidly (+18.1 percent) for 2015 compared to 2014. And although June job creation was a bit below the monthly average seen this year, weekly jobless claims dropped to the lowest level since November 1973…that’s when Tony Orlando and Dawn’s “Tie a Yellow Ribbon Round the Old Oak Tree was topping the charts!

Additionally, the two domestic areas of concern for the first half of the year appear to have abated. The rising US dollar, which acted as a headwind to the manufacturing sector over the first half of this year, seems to have settled into a range; and the rate of decline in mining has eased. Beyond the manufacturing and mining sectors, which together account for less than 15 percent of GDP, the majority of the service sector has shown decent progress in the past four months.

We’ll learn just how well the economy bounced back from a first quarter contraction when second quarter GDP is released on Thursday. Analysts predict that the economy expanded at an annualized rate of 2.5 to 3 percent, though most are also anticipating a more significant pick up for the second half of the year. The government will also release annual revisions to GDP at the same time.

MARKETS: Gold fell for 10 consecutive sessions through mid-week, the longest losing streak in almost 20 years and is now hovering at 5-year lows. The precious metal has come under pressure as the US dollar has strengthened. (Because gold is priced in dollars, it tends to fall when the dollar rises.) So much for the gold bug thesis that global central bank intervention would create runaway inflation: there is little evidence of price increases and as a result, gold is down 40 percent from its 2011 peak.

• DJIA: 17,568 down 2.9% on week, down 1.4% YTD
• S&P 500: 2,079, down 2.2% on week, up 1% YTD
• NASDAQ: 5,088 down 2.3% on week, up 7.4% YTD
• Russell 2000: 1226, down 3.2% on week, up 1.8% YTD
• 10-Year Treasury yield: 2.27% (from 2.35% a week ago)
• September Crude: $48.14, down 6% on week (-9.6% YTD)
• August Gold: $1,085.60, down 4% on week (-8.3% YTD)
• AAA Nat'l avg. for gallon of reg. gas: $2.72 (from $2.76 wk ago, $3.54 a year ago)

THE WEEK AHEAD:

Mon 7/27:

8:30 Durable Goods Orders

10:30 Dallas Fed Survey

Tues 7/28:

Ford, Pfizer, Twitter, Yelp

9:00 Case-Shiller Home Price Index

10:00 Consumer Confidence

FOMC meeting begins

Weds 7/29:

Facebook, General Dynamics

10:00 Pending Home Sales

2:00 FOMC meeting statement released

Thurs 7/30:

Amgen, Conoco Phillips, LinkedIn, Proctor & Gamble, Time Warner Cable

50^th Anniversary of Medicare

8:30 Q2 GDP (1^st estimate)

Fri 7/31:

Chevron, Exxon Mobil

8:30 Employment Cost Index

9:45 Chicago PMI

10:00 Consumer Sentiment