Wall Street Week Ahead: Payrolls could spur Fed action; Syria fears may dip

Sun Sep 1, 2013 2:59pm EDT
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By Richard Leong

NEW YORK (Reuters) - Wall Street is bracing for a wave of economic reports this 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's 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. 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 purchases.

This 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 September 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 of August, the Standard & Poor's 500 index fell 3.1 percent; the Dow Jones industrial average dropped 4.4 percent, and the Nasdaq slipped 1 percent. .N

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.   Continued...

Traders work on the floor of the New York Stock Exchange August 28, 2013. REUTERS/Brendan McDermid