The U.S. equity markets are in full summer swing, being jostled daily by economic data reports and various Federal Reserve speakers, though with no clear direction.

U.S markets traded in a ‘will they or won’t they’ pattern this last week. Investors that were not on vacation focused on the likelihood and timing of a Federal Reserve rate hike, said Larry Peruzzi, managing director of international trading at Mischler Financial Group.

“Markets started the week at all-time highs on Monday but pulled back on Tuesday when Bank of New York president Bill Dudley said that bond markets are getting overdone, and that investors and the markets were underpricing the odds of a second rise in official interest rates,” Peruzzi said. “Release of the FOMC meeting minutes on Wednesday countered the hawkish sentiment and pushed us back close to highs. Tuesday CPI data showed inflation was tame.”

Oil entered a mini-bull market as WTI gained 20% since August 1, which could push up next month’s CPI numbers.

Also, last week saw San Francisco Federal Reserve Bank President John Williams signaling open support of a hike in interest rates, saying any delay or extended wait to action by the Fed could prove costly to US economic health.

“In the context of a strong domestic economy with good momentum, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” Williams said in remarks to the Anchorage Economic Development Corporation.

He is not a voting member when it comes to interest rates but his views are taken seriously by the policy making committee.

So where does the market go, Peruzzi asked rhetorically. “Seems like we have just enough confusion and contradiction to keep markets from selling off but also keeping them from surging through current levels,” he said. “Investors are left at the bus station pondering whether to get on the bus or not. Most seem to be tentatively getting on but are ready to pull the stop request cord to get off if economic data dictates it.”

Fed funds now pricing in a 24% chance of a September hike, 51% chance of a December rate hike.

Looking ahead, Peruzzi said that as the market enters the final two weeks of summer he expects continued light volumes but increased focus on Fed watching. Chairman Yellen speaking at the St. Louis Fed’s annual monetary policy symposium in Jackson Hole, Wyoming on August 26 will be closely watched, he added, as well as the upcoming July durable goods orders which are expected to rebound on Thursday after falling 3.9% in June.

Last week the volume traded on U.S. equity exchanges averaged 5.92 billion shares per day for the week ended August 19, according to Bats Global Markets data. That’s down from an average of 6.21 billion shares in the week ending August 12.

Also in the equity markets, IEX began operation as a public exchange. The bourse migrated its first two securities to trade onto its public trading system. In the coming weeks more securities will be moved from the ATS platform to the exchange platform with a scheduled completion date of mid-September.

Relatedly, rival exchange operator Nasdaq unveiled a new order type with a delay that is designed to mimic IEX’s 350 millisecond speedbump. The order type, Extended Life Order, would be given priority over other orders of similar price (but could be immediately cancelled) no matter when the orders were placed. It is expected to be fully operation and in use by the end of the year.

 

This Week’s U.S. Economic Indicators of Interest:

Monday                             Chicago Fed Mfg Index

Tuesday                             RedBook Retail Sales
US New Home Sales
Richmond fed Mfg Index

Wednesday                       Purchasing Managers PMI Index
US Existing Home Sales

Thursday                           Weekly Jobless Claims
US Durable Goods

Friday                                US GDP
US Wholesale Trade

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