A major driver for the markets today was a sharp retreat in oil futures. The price of a barrel of light, sweet crude oil for October delivery fell by $6.59 on the New York Mercantile Exchange to settle at $114.59. It rose yesterday by $5.62.

Falling energy prices are bullish and are therefore a plus for stocks. They also ease inflation pressures and that is a plus for both stocks and bonds. But the stock rally dimmed the allure of bonds today and positioning for more supply next week further pressured the market.

In the stock market, the Dow had gained 1.73% on the day; the S&P 500, 1.13%; and the Nasdaq, 1.44%. However, all three indices posted modest losses for the week. The Dow fell by 0.27% and the S&P 500 by 0.46%. The Nasdaq's loss was a bit more substantial at 1.54%.

The yield of the benchmark 10-Year Note rose by 4 basis points on the week (yield moves inversely to price). Though the increase was small, it was the first in four weeks and the largest in five.

The only major economic release scheduled for Monday is the report on existing home sales for last month. In June's report, the National Association of Realtors reported that the seasonally adjusted, annualized pace of sales fell by 2.6% to 4.86 million. The drop surprised forecasters who were expecting only a slight decline from May's pace of 4.99 million.

Inventories of homes on the market (seasonally adjusted, annualized) rose by 0.2% to 4.86 million. At June's sales pace, this represented 11.1 months of supply, up from 10.8 months in May. The average home price rose by $4,900 in June to $257,500 but this was 6.8% below the average price a year earlier. The median price rose by $7,200 to $215,100 but this was a 6.2% drop from a year earlier.

The lower home prices relative to last year are expected to spur buying interest. But analysts foresee only a small increase in the sales rate for last month. They predict a rise of about 0.8% to 4.90 million.

A related but minor release is scheduled for Monday. This is the S&P/Case-Shiller report on home prices for June. May's report said its 10-city index dropped by 16.88% from a year earlier and the 20-city index declined by 15.78%. Both declines were records for the data series (the 20-city index going back to 2001 and the 10-city index back to 1987).

On Tuesday, the report on new home sales will be released. In the report for June, the Commerce Department said that the seasonally adjusted, annualized pace of sales fell by 0.6% to 530,000. Despite the decline, May's originally reported pace of 512,000 was revised up to 533,000, April's previously reported 525,000 was revised up to 542,000, and March's 501,000 was revised up to 513,000.

With new home construction declining, the inventory of homes on the market fell by 5.3% in June to a seasonally adjusted, annualized level of 426,000. This was a fourteenth consecutive monthly contraction. But since the sales pace picked up, the inventory level represented 10.0 month's of sales, down from a 10.4 month turnover time in May.

The average new home price declined by just $300 to $298,000 but this was 2.6% lower than what it was a year earlier. The median price rose by $3,200 to $230,900 but was 2.0% lower on a year-over-year basis.

For July, another decline in the sales pace is predicted. Recent forecasts call for a drop of 0.9% to a 525,000 rate. If the prediction is accurate, the pace would be the second lowest since October of 1991.

A little later on Tuesday, the Conference Board, an independent research firm, will release its Consumer Confidence Index for the month. In July, the index came in at 51.9, up from June's 51.0. Though the figure was still low, it represented the first monthly increase since last December. With gasoline prices continuing to fall, another increase is anticipated for this month. The consensus forecast is for a reading of about 53.0. Though the increase would be a sign that the collective mood of consumers is improving, it should be recalled that the index for August of last year was 105.6.

On Tuesday afternoon, the Federal Reserve will release the minutes of the last meeting of the Federal Open Market Committee (FOMC), the central bank's monetary policy arm. The meeting was held on August 5th. It concluded with no change to the Fed's target for the short-term borrowing rate between banks (the fed funds rate) or the rate for loans directly from the Fed (the discount rate). The results had been anticipated following previous aggressive action that included cutting the discount rate by 4.00% since last August and the fed funds rate by 3.50% since September.

The Fed has also established other means of fighting credit congestion. In December, the Fed instituted a Term Auction Facility (TAF), a temporary program whereby short-term funds can be obtained by banks from the Fed on an auction basis using a broad range of collateral including mortgage-related securities.

In March, the Fed instituted a Term Securities Lending Facility (TSLF), which allows primary securities dealers to borrow Treasuries from the Fed's account for a term of 28 days, using a variety of collateral including mortgage-backed securities. Previously, dealers could only borrow Treasuries from the Fed for one day.

In July the Fed opened its discount window to the secondary mortgage market agencies, Fannie Mae and Freddie Mac.

The minutes of the last meeting may shed some light on what committee members are focusing on. As today's speech by Ben Bernanke illustrates, the FOMC position on monetary policy seems to be suspended between concerns over a weak economy and credit market, and worries that inflation pressures may fail to abate as projected.

On Wednesday, the report on durable goods orders for last month will be released. Durable goods are defined as items meant to last three years or more. They are usually labor-intensive to produce, expensive, and therefore often financed. Because of this, the trend in orders provides some insight regarding upcoming production activity and the effect interest rates may be having on the process.

In the report for June, the Commerce Department said that the seasonally adjusted level of orders rose by 0.8% following a 0.1% increase in May. The expansion surprised forecasters who were looking for little change in the orders level.

Some of the data in the last durables report was revised in the factory orders report, which includes information on both the durable and nondurable sectors. The following figures are from the factory orders report.

A particularly volatile category is transportation and the durable orders level there fell by 2.7% in June due to a decline in commercial aircraft of 25.0%. Excluding transportation, orders were up by 2.0%, the strongest increase in six months.

Observers also look at the orders level excluding the defense sector since defense orders are not governed by standard market forces. While the order level in the defense sector rose by 12.9%, ex-defense orders were flat 0.0%.

Another closely watched category is that of nondefense capital goods minus aircraft, seen as a gauge of core business demand. The order level there rose by 1.2% following a 0.3% decline in May.

For July, durable goods orders are expected to have edged up by 0.1% or 0.2%.

On Wednesday afternoon, the Treasury will be auctioning its monthly issue of 2-Year Notes. July's issue drew mixed demand but the sale was considered successful. Bids exceeded the $31 billion offer amount by 2.42 to 1, down from June's bid-to-cover ratio of 2.64 and below the average of 2.60 for the twelve auctions preceding last month's. But individual investor demand was strong. Noncompetitive bids totaled $823 million, the largest amount since last August. Even though the offer amount was exceptionally high, noncompetitive bids represented 2.7% of the issue, the largest percentage since last November.

Foreign demand was also strong. Indirect competitive bids, which include those from foreign central banks, received 35.8% of the issue, the highest award portion since April of last year.

Next week's issue is expected to have the same face value as last month's. The deadline for competitive bids is 1:00 PM Eastern Time. The deadline for noncompetitive bids is noon.

The employment situation will be highlighted on Thursday once again by the jobless claims report. In yesterday's the Labor Department said the seasonally adjusted level of initial claims for state unemployment benefits fell by 13,000 last week to 432,000. The previous week's originally reported level of 450,000 was revised down to 445,000 and the preceding week's 460,000 was trimmed to 457,000.

In the last two weeks, the claims level has fallen by 25,000 but this followed four weeks of increases totaling 109,000. In addition, readings above 400,000 are perceived as indications that layoffs are outpacing hiring.

The four-week moving average, which smoothes out some short-term volatility, rose by 7,250 last week to 445,750, the highest reading since December of 2001. For the first thirty-three weeks of the year, the average weekly initial claims figure has been 373,879. For the same period last year, the average was 315,394.

Yesterday's report said that the level of continuing claims for the week ending August 9 (continuing claims must be at least a week old) fell by 17,000 to 3.362 million. More significantly, the previously reported level of 3.417 million for the week ending August 2 was revised down by 38,000 to 3.379 million. Nevertheless, the four-week average rose by 66,250 to 3,330,250, the highest reading since November of 2003.

For the first thirty-two weeks of the year, the average continuing claims reading has been 2,995,063. For the same period last year, it was 2,517,813.

Little change is anticipated for this week's initial claims figure.

Thursday also brings the first revision to last month's initial estimate of second quarter gross domestic product (GDP). GDP is the market value of all final goods and services produced by labor or property in the country in a year?s time. Quarterly data is adjusted and annualized and changes from quarter to quarter indicate the strength and direction of the economy.

In last month's advance report, the Commerce Department said GDP grew by 1.9% in the April through June period, a weaker increase than the 2.0% or more that analysts were predicting, but a marked improvement from the first quarter's gain of 0.9%. Last month's report included revisions going back to 2005 because of the annual recalibration of seasonal adjustment factors. The revisions produced an average reduction to quarterly growth rates of 0.2% over that time period. A previously reported increase of 0.6% in the fourth quarter of last year was revised to a decline of 0.2%, the first contraction since the third quarter of 2001.

The major contributor to GDP growth in the second quarter was the improvement in the balance of trade (net exports of goods and services). It represented a 2.42% addition to the GDP calculation, the largest in the category since the third quarter of 1980. Residential investment remained a major weak spot.

The inflation news contained in the advance GDP report was tame. The price index rose by 1.1%, the smallest increase since the second quarter of 1998. The index for personal consumption expenditures (consumer spending) excluding the volatile categories of food and energy saw an increase of 2.1%. While this is still somewhat elevated, it was the lowest in three quarters.

The report on international trade for June showed a much smaller deficit than analysts had predicted. Because of this, the preliminary GDP report is expected to show a stronger jump in growth of between 2.5% and 3.0%. A high-end reading would be extremely bullish and likely boost stocks and depress bonds.

Bonds will be facing more supply pressure in any event since the Treasury will be conducting its monthly auction of 5-Year Notes on Thursday afternoon. Last month's issue drew decent demand. The bid-to-cover ratio was 2.46. Though this was down slightly from June's ratio of 2.48, observers had feared that the large offer amount -- a five-year high of $21 billion -- would dilute demand even more. In fact, July's ratio was higher than the 2.28 average of the twelve preceding auctions.

Noncompetitive bids totaled about $100 million. This was up from June's $91 million and was in line with the twelve month average of $101 million.

Foreign demand was firm. Indirect competitive bids received 32.9% of the issue. This was the largest award portion in the last four months and was higher than the twelve-auction average of 25.0%.

Thursday's issue is also expected to have a face value of $21 billion.

On Friday, the report on personal income and spending for last month will be released. In the report for June, the Commerce Department said that personal income, the fuel for consumer spending, edged up by 0.1%. This was the smallest increase since a flat reading (0.0%) in April of last year. However, it came following a 1.8% jump in May.

May's increase was the largest since the Hurricane Katrina skewed spike in September of 2005 but was also due to an exceptional circumstance: the initial round of tax rebate issuance under the government's economic stimulus legislation.

Because of the atypically strong May reading, forecasters were looking for a weak reading for June. In fact, they had predicted a slight decline in income so the reading was actually more bullish than anticipated.

The report said that personal consumption expenditures (PCE; consumer spending) rose by 0.6% in June. This may have reflected the expenditure of rebate monies, but it too was slightly stronger than the 0.5% increase that analysts had predicted. Spending rose by 0.8% in May.

Apart from the headline figures, an inflation indicator, the PCE price index, was not welcomed by either market. It rose by 0.8% in June -- also the biggest jump since September of 2005. It rose by 0.5% in May, an upward revision to the originally reported rise of 0.4%. Excluding the volatile categories of food and energy, the price index rose by 0.3% in June following a 0.2% rise in May (originally reported as 0.1%).

July's income data will still be skewed by the spike in May. All else being equal, the decline in the issuance of tax rebate checks will reduce the average income figure. Currently, forecasters are calling for a decline of 0.1%. Although modest, this would be the first decline in three years. Personal spending is expected to have risen by 0.3% last month.

An important manufacturing indicator is also scheduled for release on Friday. This is the Chicago Purchasing Managers Index (PMI), a gauge of manufacturing activity in the highly-industrialized region. The index came in at 50.8 in July following a reading of 49.6 in June. Any reading over 50.0 reflects a general expansion of manufacturing activity relative to the preceding month. Although July's index indicated only a slight improvement is was the first expansion in six months. August's index is expected to be near-neutral.

The last major economic release of the week is the final read on consumer sentiment from the twice-monthly surveys conducted by the University of Michigan. The preliminary index, released last Friday, came in at 61.7, up slightly from July's final reading of 61.2. The expectations index rose to 56.8 from 53.5 but the index of current conditions fell to 69.3 from 73.1.

A decline in gasoline prices is said to be a major contributing factor to the latest improvement in sentiment, though the index is still extremely weak by historical standards. In August of last year, the final index reading for the month was 83.4.

An improvement in the final August reading is anticipated. Estimates range from 62.0 to 63.0.