Markets Vote No Confidence in the Appropriateness of a Fed Rate Hike -- What to Look for Next Week

The markets voted no confidence in the appropriateness of a Fed rate hike today -- stocks,  Treasuries and oil prices fell sharply and the dollar rose.  The stock market reaction, especially, signals that a rate hike would be viewed as harmful to the economy.  The markets reacted to a speech by Boston Fed President Rosengren in which he said that in his opinion "a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy."  The large market reactions to this standard Fed comment (in line with Yellen's Jackson Hole speech) show a pent-up sensitivity to the potential for a September rate hike.  Several items scheduled next week may show whether this sensitivity was overdone today:

Monday:
1.   Atlanta Fed President Lockhart speaks twice.  His last speech on August 16 indicated that he thinks one rate hike this year would be appropriate.   He is not likely to change this view, and a repeat may test whether the market is "sold out" on the potential for a hike.

2.  Fed Governor Brainard speaks at 1.15pm (EDT), later than Lockhart.   She has been a dove and a better indicator of upcoming Fed actions than have the hawks.  If she continues to argue against a hike, the markets could reverse some of the latest sell-off.   If she says that a reasonable case can be made for a hike, it would seem to be almost a done deal.

Thursday:
1.  August Retail Sales risk printing weaker than expected, based on anecdotal evidence.   In particular, the very hot weather in the country could have had a depressing effect on the early introduction of fall clothing.   Consensus is 0.0% m/m Total and +0.2% Ex Auto.  A weak report could push down the NY Fed and Atlanta Fed models' nowcast of Q3 Real GDP Growth.  The latest nowcasts are 2.8-3.3% for Q316 Real GDP Growth (was 3.0-3.5% before today's release of July Wholesale Inventories).  The NY Fed model projects 1.7% for Q416 Real GDP Growth.

2.  The Claims data are for the Labor Day week, so the markets may ignore them.  They strengthened a bit in yesterday's release, but stayed within their recent range.  Moreover, they could have been held down by the bad weather in the Southeast that week -- and catch-up could boost them in this report.

3.  The September Phil Fed Manufacturing Index could come in weaker than expected, after it ran counter to the Mfg ISM in August (it rose, while Mfg ISM fell).  Consensus is for an unchanged 2.

4.  August Manufacturing Output, part of Industrial Production, could unwind the +0.7% m/m jump in July, based on the drop in Mfg jobs and hours worked in August.   The July jump was cited by Fed hawks as evidence supporting a rate hike.

Friday:
1.  A soft August Core CPI, just like the +0.1% m/m July Core, would question the need to slow the economy -- and thus argue against a Fed rate hike.