Market participants will face a host of potentially market-moving events in the week ahead, highlighted by Federal Reserve chair Jerome Powell’s congressional testimony, as well as an update on retail sales.

While Philadelphia Fed president Patrick Harker and Fed vice chairs Richard Clarida and Randal Quarles each prepare to flock to their respective podiums in the week ahead, Fed chair Powell will also be busy providing congressional testimony on the central bank’s economic outlook.

Investors have been generally scrutinizing the Federal Open Market Committee (FOMC) for their stance on monetary policy this past year, after U.S.-China trade tensions, slowing global growth, weak domestic fixed investment and sluggish inflation helped reverse their hawkish agenda – and instead spurred a trio of rate cuts.

For now, the latest decision by the FOMC in late October to slash the target range for the federal funds rate by another 25 basis points to 1.50%-1.75% is widely expected to remain in place, at least through year-end.

On the Fed Calendar:

Monday, November 11

• Veterans’ Day Holiday

Tuesday, November 12

• Fed Vice Chair Richard Clarida
  • Monetary Policy, Price Stability, and Bond Yields
• Philadelphia Fed President Patrick Harker
  • What’s next for the U.S. economy and the Fed? +Q&A

Wednesday, November 13

• Fed Chair Jerome Powell
  • Testimony before the Joint Economic Committee, U.S. Congress on the Economic Outlook

Thursday, November 14

• Fed Vice Chair Randal Quarles
  • Welcoming remarks at the International Association of Insurance Supervisors’ (IAIS) 26th Annual Conference, Abu Dhabi, United Arab Emirates
• Fed Vice Chair Richard Clarida
  • The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices at the Cato Institute’s 37th Annual Monetary Conference, Washington, D.C.
• Fed Chair Jerome Powell
  • Testimony before the House Budget Committee, Washington, D.C. on the Economic Outlook

Recent quotes about the future implied probability the central bank will elect to cut rates by an additional 25 bps at the conclusion to its two-day monetary policy meeting on December 11 were just north of 9.5%, with an overwhelming majority of just over 90% anticipating no change.

Fed chair Powell has said that the committee views “the current stance of policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent” with its outlook. Overall, he added, “we’ve seen moderate growth, a strong labor market,” and inflation “moving up,” amid an outlook that is “for more of the same”.

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The path of monetary policy has certainly moved in a different direction than Philadelphia Fed chief Harker foresaw earlier in 2019, when he expected a single rate hike for the year, as well as an additional hike in 2020.

Harker, who is poised to present a speech on What’s next for the U.S. economy and the Fed? on Tuesday, had characterized the U.S. economic climate in February as “temperate” for inflation, with “continued strength in the labor market,” as well as “very slight downside risks.”

The yield on the 10-year U.S. Treasury note had been hovering at around 2.71% at the time Harker had given his speech on February 13, a 53 bp drop from its eight-year high of 3.24% set on November 8, 2018.

The 10-year yield was last bid at around 1.909% intraday Friday, a 43 bp rise since the beginning of September 2019.

Analysts at Janney Montgomery noted that “the longer-term trend puts into perspective the recent uptick in yields, induced by most recent monetary policy decisions at various countries and hopes for trade resolution, among other factors.”

Indeed, the European Central Bank in mid-September unleashed a multi-pronged plan to aid in the revival of stubbornly low levels of euro area inflation, alongside other global several banks that have committed to dovish paths, including the Reserve Bank of Australia, as well as the Swiss National Bank and the Swedish Riksbank.

The accommodation, combined with volatility-inspired market moves, have spurred many countries’ long-term government bond yields to record lows.

Janney Montgomery added that the re-steepening of the U.S. yield curve “caused by a move up in 5- to 30-year rates by 22 bps over the past week is “notable in its own right,” compared to only a 14 bp rise in yields for the 2-year U.S. Treasury note.

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Consumer Optimism Overshadows Roiling Retailers

A recent cooling in the U.S.-China trade battle, as well as an upbeat October employment report, has also helped risk-taking sentiment, which in turn has fueled some optimism among consumers.

According to the University of Michigan’s preliminary reading for November, consumers have essentially carried forward their slightly optimistic sentiment from the prior month, although negative references to tariffs were still mentioned by one-in-four respondents.

Richard Curtin, University of Michigan’s Surveys of Consumers chief economist, noted that while consumers “did voice a slightly more positive outlook for the economy,” this was offset by “a slightly less favorable outlook for their own personal finances”.

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Meanwhile, Curtin added that references to another potential headwind on economic prospects – the impact of impeachment proceedings against U.S. President Donald Trump – were “virtually non-existent.”

The Index of Consumer Sentiment notched up to 95.7 in the early November reading from 95.5 in October, with the expectations gauge having climbed to 85.9 from 84.2 previously.

Against this backdrop, shares of the SPDR S&P Retail ETF (NYSEARCA: XRT), which has among its top holdings firms such as Game Stop (NYSE: GME), Foot Locker and Urban Outfitters (NASDAQ: URBN), have climbed roughly 17.7% since mid-August, according to the IBKR Trader Workstation.

The XRT ETF was last down around 0.45% to US$44.50, while the broader market was basically flat, amid lingering caution about trade progress, given a final agreement on a so-called ‘phase one’ partial deal between the U.S. and China has not yet been reached.

Among the long list of economic releases in the week ahead, investors will receive fresh figures on the retail sector from the U.S. Census Bureau, after some analysts said the recent downturn in sales growth may not be long-lasting.

Jefferies chief financial economist Ward McCarthy, for example, noted that he expects the consumer sector will continue to be “a source of solid growth,” while softness in September’s retail figures will “prove to be the pause in spending that refreshes the strong trend.”

Advance estimates of U.S. retail and food services sales for September 2019 fell 0.3% from the prior month to US$525.6bn but rose 4.1% year-on-year.

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On the Economic Calendar:

Monday, November 11

• Veterans’ Day Holiday

Tuesday, November 12

• Redbook
• Consumer Inflation Expectations (Oct)

Wednesday, November 13

• CPI (Oct)
• American Petroleum Institute (API) Crude Oil Stocks

Thursday, November 14

• PPI (Oct)
• Initial Jobless Claims
• U.S. Energy Information Administration (EIA) Crude Oil Stocks

Friday, November 15

• Retail Sales (Oct)
• Industrial Production (Oct)

Fall into the Gap

Still, certain retailers have promoted general anxieties about the industry, especially following recent bankruptcy filings and restructurings of iconic stores such as fast-fashion retailer Forever 21, as well as Barneys and Diesel.

Fears about the financial health of San Francisco-based apparel chain Gap Inc (NYSE: GPS) spurred the company’s stock far south ahead of the weekend after the firm announced the departure of its CEO Art Peck.

The Gap – parent to popular U.S. apparel brands Old Navy and the Banana Republic – said Thursday that Peck, who had served the company for nearly fifteen years, was stepping down from his position and from the company’s board with immediate effect.

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After a brief transition, Robert Fisher, the company’s current non-executive chair, will replace Peck on an interim basis.

Gap CFO Teri List-Stoll said the third quarter of 2019 has been “challenging”, given how macro impacts and slower traffic “further pressured results that have been hampered by product and operating challenges across key brands.” She added that “there is more work to do to leverage the capabilities we have invested in and deliver the profitable growth we know these brands are capable of delivering.”

In tandem with the leadership change, the Gap also provided guidance for its Q3 2019 earnings and fiscal year 2019 ahead of its scheduled release for November 21.

The firm said comparable sales Q3’19 fell 4% compared to last year’s flat reading, while. comparable sales by global brand were:

•   Gap Global: -7% vs -7% last year

•   Banana Republic Global: -3% vs +2% last year

•   Old Navy Global: -4% vs +4% last year

The Gap said it expects diluted earnings per share for Q3’19 of around US$0.34 to US$0.36, with adjusted diluted earnings per share to be in the area of US$0.50 to US$0.52.

The company also updated its reported diluted earnings per share guidance for FY 2019 to be in the range of US$1.38 to US$1.47 and now expects 2019 adjusted diluted earnings per share guidance range of US$1.70 to US$1.75, a steep drop from previous guidance of US$2.05 to US$2.15.

Gap’s stock was last down around 6.8% to US$16.83, following a plunge of almost 43% since its latest 52-week peak set on March 1, 2019, according to the IBKR Trader Workstation.

Some notable retail names set to release their latest quarterly earnings in the week ahead include Walmart (NYSE: WMT) on Thursday and J.C. Penney (NYSE: JCP) on Friday.

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.