| NEW YORK
NEW YORK Aug 30 Wall Street is bracing for a
wave of economic reports next week, including the August jobs
report, which might prove decisive in determining whether the
economy is strong enough for the Federal Reserve to dial back
its bond purchases in mid-September.
Anxiety about the Fed possibly reducing its $85 billion
monthly stimulus, also known as QE3, has hurt the stock market,
which recorded its steepest monthly fall since May 2012.
But the stock market's greater anxiety, which has developed
in recent weeks, is that the Fed will press ahead with a
reduction in support, even as the economy remains fragile. The
recent data has failed to provide evidence of the convincing
growth the Fed says it wants to see. Until then, stocks will
benefit from the cheap money resulting from the Fed's bond
"Next week's data should make or break the September
expectations," said Mike O'Rourke, chief market strategist at
JonesTrading in Greenwich, Connecticut.
A strong jobs report will likely reinforce the view the Fed
will opt to decrease its bond purchases at its Sept. 17-18
meeting, while a weak one would do the opposite, analysts said.
"From a real economy perspective, QE3 has done very little.
From a financial markets perspective, it has had a major
influence. If it is really not helping the real economy beyond
pushing financial assets higher, there is no point in continuing
the risk of increasing the balance sheet," said O'Rourke.
For the month, the Standard & Poor's 500 index fell 3.1
percent in August; the Dow Jones industrial average lost 4.4
percent and the Nasdaq slipped 1 percent.
Speculation on the timing of Fed action has triggered a bond
market sell-off that sent mortgage rates to two-year highs. The
surge in home borrowing costs this summer has shown signs of
slowing the housing recovery. Analysts also are watching if the
higher rates have discouraged employers from adding workers.
Economists polled by Reuters forecast domestic employers
likely hired 180,000 workers in August, more than 162,000 in
July, while the jobless rate likely held steady at 7.4 percent,
which is a four-year low.
Deutsche Bank economists said that if the payrolls figure
exceeds 190,000 and the unemployment rate falls to 7.3 percent,
they expect the Fed will start cutting bond purchases. "August
employment would have to meaningfully disappoint for the Fed to
back away from the timetable presented by Chairman Bernanke in
the June post-meeting press conference," they wrote.
Prior to the payrolls data on Friday, traders will face a
heavy schedule of economic releases after the three-day holiday
weekend. They include the latest readings on vehicle sales and
national factory and service activities.
U.S. financial markets will close on Monday for the Labor
Investors are watching the tense situation between the West
and Syria. Signs of a U.S.-led military strike against Syria
after chemical weapons were used to kill civilians could hurt
the appetite for stocks globally.
Traders pared expectations on such a move after the British
parliament voted against a military strike. But France said it
supported punishing the Syrian government for the attack on
civilians. U.S. Secretary of State John Kerry said on Friday the
chemical weapons attack in Damascus last week killed more than
Despite the sharp moves in equities due to the Syrian
unrest, "we still expect the market to stop short of a 10
percent decline," said Mike Dueker, head economist for North
America at Russell Investments in Seattle.
Light volume in late summer likely exaggerated August's
stock decline, analysts said. The uncertainty has also boosted
measures of volatility. The CBOE Volatility Index rose
above 17 on Friday, a two-month high.
Bonds, in comparison, posted small losses. They were poised
to lose 0.54 percent in August, according to Barclays' Aggregate
bond index that tracks U.S. investment-grade debt returns.
While Syria and economic data will be next week's main
concerns, other developments, such as President Barack Obama's
nominee to succeed Ben Bernanke as Fed chief and another
possible showdown between Obama and congressional Republicans
over the federal debt might keep investors on edge, analysts
"There is no doubt that September is teed up for a tsunami
of data coming at us and headlines coming at us," said David
Lyon, investment specialist at JP Morgan Private Bank in San
Francisco, California, which manages $910 billion in assets.
"So the market will look at September and really start to
find its footing based on some of the economic data that comes
out as well as clarity around some of these policy decisions at
the central bank level or the geopolitical level," he said
History might complicate that view.
September has traditionally been the worst month for stocks,
with an average 0.6 percent decline in the S&P 500 index over
the past 62 years, although it rose 2.4 percent last September.
This September marks a milestone - the five-year anniversary
of the global credit meltdown during which Wall Street witnessed
the downfall of Lehman Brothers, the sale of Merrill Lynch, the
near-demise of insurance giant AIG.
In that turbulent September 2008, the market tumbled 9.1