This week’s economic calendar is important, including reports on personal income and spending, consumer confidence, and the Fed’s favorite inflation indicators. Despite this, the punditry will be looking toward the week’s end and news from the G20 meetings. Naturally, we can expect some advance leaks. Everyone will be wondering: Can a US/China trade truce boost the global economy?

Last Week Recap

In last week’s installment of WTWA, I questioned the ever-growing Fed mandate. While not phrased exactly in those terms, much of the last week’s financial commentary had a Fed focus. Somehow, most have come to believe that this is the fundamental force behind financial markets – whether driven by opinion, the President, or financial futures.

Whether you agree with this conclusion or not, it is important to realize its wide acceptance.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who conveys a lot of key information in her picture worth more than a thousand words.

With the help of two gap openings, the market rallied 2.2% on the week. This is only slightly smaller than the range of 2.6%. Our weekly Indicator Snapshot provides a handy history of both actual and implied volatility.

Personal Note

Mrs. OldProf and I are still traveling, but I found a few minutes to update the key news and indicators. Next weekend should be a return to normal.

Noteworthy

The international pension time bomb.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

In this week’s summary I will just hit the highlights. Housing starts, building permits, and existing home sales were all in line with expectations. Calculated Risk has updates on all three as well as more on the decline in mortgage delinquencies.

The market celebrated the Fed announcement despite the lack of an immediate rate cut. Check out the changes for yourself, and see what you think.

Leading Fed analyst Tim Duy writes:

The Fed turned more dovish than I anticipated, basically announcing a July rate cut as clearly as they could without taking out an ad in the Wall Street Journal.

He notes that the “dot plots” and forecasts were also more dovish.

The Calendar

This week’s economic calendar is important, featuring data on consumer confidence, new home sales, and personal income and spending. And don’t forget the PCE price index, the Fed’s favorite measure.

Everyone will be waiting for news from the G20 meetings, officially starting on June 28 in Japan. The exact timing of news will probably not conform to the two-day schedule.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

With little left to squeeze out of the Fed discussion, I expect markets to turn attention to the G20 meetings and a possible US/China truce. The question will be: Can US/China trade talks improve prospects for world economic growth?

Quant Corner and Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

Despite last week’s rally, the technical market health is getting worse. As we have seen so often in the last several months, the story is much different for traders than for investors.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score”.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

Georg Vrba: Business cycle indicator and market timing tools. The most recent update of Georg’s business cycle index does not signal recession, nor does his unemployment rate method.

RecessionAlert: Strong quantitative indicators for both economic and market analysis

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis.

Final Thought

The Fed. The Fed message seemed clear, yet there are no guarantees. My sense is that it would not take much to cause another change in course. A tight labor market could lead to a bump in inflation, which is already a bit higher than many realize.

The trade talks. It is absolutely crazy to guess the outcome, and I will not try! Those who think they understand Chinese motives and decision processes are too confident. Those who think they can predict the President’s next move are even further off base.

Iran. I am concerned about the potential for escalation of the conflict. This is another flash point where no one can really predict what might happen next. This does not call for immediate investment action, but I am watching closely.

Technical/fundamental tension. Technical analysts are still bearish. Our own technical approaches also warn of possible stock weakness. In contrast, stocks remain very cheap, especially when compared to bonds. These fundamental methods have worked better than the technical calls in recent times. Many sectors would enjoy a major boost from even slight improvement in the world economic prospects.