The Fed will be a top priority on Wall Street in the week ahead, as markets also watch for any new fallout from the Trump campaign investigation.
There are a handful of Fed speakers, and their words will be more important after St. Louis Fed President James Bullard Friday said the Fed's interest rate hiking plans may be too aggressive. The minutes from the Fed's May 3 meeting will be released Wednesday, but market developments, some softer data, and new uncertainty around the investigation into Trump's campaign have made them outdated, Fed watchers say.
President Donald Trump will be out of the country, visiting Saudi Arabia, Israel, and Italy on his first overseas trip. Trump also attends G-7 at the end of the week. Markets are keenly watching this trip to see how the president's unconventional behavior plays in diplomatic circles and in his interactions with other world leaders.
Oil could be a major focus with OPEC's decision Thursday on whether to extend its current production agreement. West Texas Intermediate crude futures crept back above $50 per barrel Friday on expectations oil producers will strike a bigger deal than their last production-cut accord.
Stocks finished out the past week with just a slight loss, after Wednesday's deep swoon on concerns that Trump's Russia troubles could be taking a more serious turn. But by Friday, traders had stopped worrying about impeachment and were hoping a special counsel on the investigation would bring some calm. However, news broke late Friday that former FBI director James Comey agreed to appear before a Senate committee after Memorial Day, and nervousness could remain in markets ahead of that.
"My guess is that this is just a distraction. The reason it's important for investors is not because Trump is going to get impeached, but because it distracts from the economic program," said Marc Chandler, chief currency strategist at Brown Brothers Harriman.
There are some key economic reports including advanced trade data Thursday, and Friday's update on first quarter GDP and durable goods. There is also just a trickle of earnings, including HP, Tiffany and Best Buy.
Anxiety about the Fed ran high this past week in the bond and foreign exchange markets, where Trump's troubles were taken as a potential disruptor for the Fed's plan to raise interest rates two more times this year. The thinking was that financial conditions could worsen if markets continue to react negatively to investigation-related headlines. There's also concern that a recent string of disappointing data could also deter the Fed, particularly as expectations for any economic bump from the Trump agenda faded.
Treasury yields, which move opposite prices, headed lower, as investors worried that Trump's problems would be enough of a distraction in Washington to delay or even eliminate the potential for tax reform and stimulus.
"The bond market is already looking past the Trump bump, if there was one," said Tony Crescenzi, portfolio manager at Pimco. "The general view is tax reform is much more difficult than tax cuts but tax cuts are still likely." But the timing has been pushed out.
"No one 's in the camp of 2107. Now it's 2018. The bond market yields can't easily fall much more because the global economy is in good shape, supported by China," said Crescenzi.
The 10-year yield was at 2.23 percent late Friday, and the 2-year yield, which more closely reflects the Fed, was at 1.12 percent. As for stocks, the S&P 500 was down 0.4 percent for the week to 2381.
The dollar index was down more than 2 percent for the week, hitting a low of 97.08, its lowest level since Election Day. The dollar fell as the euro gained, rising 2.5 percent for the week. The euro has benefited from Emmanuel Macron's victory in the French election, as opposed to a far right candidate who wanted France to leave the single currency. At the same time, European economic data is improving and funds are rushing into euro zone assets.
"I think people are re-evaluating political risk which has rather quickly shifted away from being a negative for the euro, to become a negative to the dollar," said Alan Ruskin, head of G-10 currency strategy at Deutsche Bank.
As for stocks, aside from Wednesday, the reaction to Trump's troubles has been muted, but that may not remain the case when Comey testifies. Don Townswick, director of equities strategy at Conning, said there could be a big reaction depending on what the former FBI director says.
Comey reportedly wrote in a memo that Trump asked him to end the investigation into Michael Flynn, former national security advisor at the heart of the investigation into the Trump campaign's ties to Russia. Trump says that is not true, but the president also reportedly told Russian diplomats that Comey was a "nut job" and firing him relieved "great pressure," according to the New York Times. Trump also reportedly shared classified information with those same officials.
"I think there is going to be a response to his testimony that I think it will be a big positive move or a big negative move," said Townswick, adding it wouldn't be as big as 5 percent.
Saudi Arabia and other OPEC members meet in Vienna on Thursday, after a meeting of the monitoring committee Wednesday. OPEC is expected to consider expanding the agreement to nine months from six months, as well as potentially increase the 1.8 million barrels a day of production it is holding off the market.
According to TD Securities, speculative traders in West Texas Intermediate crude cut back their long positions going into the OPEC meeting. "Short future positions actually reduced last week, and the build in short positioning was mainly from options as investors speculate OPEC will disappoint next week," analysts at TD wrote.
"At this point, it seems the market believes a six-month roll over is a base expectation, and everything else will be icing on the cake," said Michael Cohen, head of energy commodities research at Barclays.
Energy ministers from Russia and Saudi Arabia said they would recommend producers consider a nine-month agreement.
"It's been our contention that they'll roll over their cuts and compliance may not be as high during the summer when a lot of the OPEC countries have summer demand needs," Cohen said. "It's going to be very difficult for many of these OPEC countries, especially Saudi Arabia to agree to extend the cuts beyond the December time frame without an agreement from other non OPEC countries to comply. I think it's got to be difficult for countries like Russia and Kazakhstan to agree to keep their output under wraps."
What to Watch
Earnings: Agilent, Booz Allen Hamilton, Nordson
9:00 a.m. Minneapolis Fed President Neel Kashkari
10:05 a.m. Philadelphia Fed President Patrick Harker
7:00 p.m. Federal Reserve Governor Lael Brainard
9:10 p.m. Chicago Fed President Charles Evans
Earnings: AutoZone, Momo, Intuit, Toll Brothers, Heico
10:00 a.m. New home sales
10:00 a.m. Richmond Fed survey
3:15 p.m. Minneapolis Fed's Neel Kashkari
5:00 p.m. Philadelphia Fed President Patrick Harker
Earnings: HP, Tiffany, Lowe's, Pure Storage, Bank of Montreal, Eaton Vance, JA Solar
9:00 a.m. FHFA home prices
9:45 a.m. Markit mfg. PMI
10:00 a.m. Existing home sales
2:00 p.m. FOMC minutes
6:00 p.m. Dallas Fed President Robert Kaplan
OPEC meets in Vienna
Earnings: Medtronic, Abercrombie and Fitch, Ulta Beauty, GameStop, Nutanix, Splunk, Best Buy, Hormel Foods, Toronto-Dominion Bank , Royal Bank of Canada
8:30 a.m. Jobless claims
8:30 a.m. Advance econ indicators
4:00 a.m. New York Fed Executive Vice President Simon Potter
10:00 a.m. Fed Gov. Lael Brainard
10:00 p.m. St. Louis Fed President James Bullard
8:30 a.m. Durable goods
8:30 a.m. Q1 (second read) Real GDP
9:45 a.m. Markit services PMI
10:00 a.m. Consumer sentiment