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Archive for September, 2009

September Chicago Purchasing Managers Index Drops

September 30th, 2009 Michael McDonough Comments off

The Chicago Purchasing Managers Index unexpectedly fell back below 50 to 46.1 in September.  This was well below the Bloomberg consensus forecast of 52.0, and August’s reading of 50.0.  I warned in my US week ahead that this indicator had the potential of surprising to the downside due to seasonal effects, but a drop of this magnitude was due to more then seasonal adjustments, and indicates an unwelcomed slowdown in mid-west economic activity.

Looking at the components, new orders declined to 46.3 from 52.5 in August, production fell to 47.2 in September from 52.9 , employment essentially held steady at 38.8 September from 38.7, and prices paid increased to 51.3 from 50.0.  This weak reading may place some downward pressure on other manufacturing indicators, including the ISM.

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Categories: Data Release, GDP, US Tags:

Is the Yen Overvalued? (A Quick Look)

September 29th, 2009 Michael McDonough Comments off

The Japanese Yen reached an eight month high yesterday against the USD (see chart), which led Japan’s finance minister, Hirohisa Fujii, to deny to Bloomberg that he is supporting a stronger Yen.  Nevertheless, it is my belief that the Yen may be overvalued and could experience a correction over the near-term.  Supporting this view is weak Japanese exports suppressing trade balances coupled with what would appear to be a slowdown in the unwinding of Yen carry trades.  With this in mind I believe investors should consider–but I am not recommending– selling Japanese Yen against the USD, or an export oriented currency such as Brazil’s BRL.  With this in mind I took a long position in ProShares UltraShort Yen ETF (YCS) yesterday.  This ETF is designed to return double the inverse daily relationship between the USD’s price of the Yen.

Yen/USD

JPY

YCS vs. JPY

JPY-YCS

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September’s Consumer Confidence Unexpectedly Dips

September 29th, 2009 Michael McDonough Comments off

September’s consumer confidence fell to 53.1, compared to a consensus forecast of 57.0, and a previous reading of 54.1.  According to the report “Consumer Confidence, which had improved in August, retreated slightly in September. The Present Situation Index decreased, as consumers viewed both current business conditions and the labor market less favorably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news.”

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Categories: Consumer News, US Tags:

Case Shiller HPI an Improving Trend

September 29th, 2009 Michael McDonough Comments off

On a monthly basis both the 10 and 20 city Case Shiller HPI came in higher in July at +1.65% and 1.60%, respectively.  However, on a yearly basis the 10 city index is still down 12.8%, while the 20 city index is down 13.30%. On a monthly basis only three cities experienced declines (Detroit, Las Vegas, & Seattle).  The strongest performers were Minneapolis (+3.1%), San Francisco (+2.9%), and Chicago (+2.1). Overall, the data was slightly better than market expectations, but the impact should only be marginal.

YoY MoM
NV-Las Vegas -31.4% -1.9%
AZ-Phoenix -28.5% 1.2%
MI-Detroit -24.7% -0.4%
FL-Miami -21.2% 1.0%
FL-Tampa -18.5% 0.5%
CA-San Francisco -17.9% 2.9%
MN-Minneapolis -17.4% 3.1%
WA-Seattle -15.4% -0.3%
CA-Los Angeles -14.9% 1.2%
IL-Chicago -14.2% 2.1%
OR-Portland -13.9% 0.5%
Composite-20 -13.3% 1.2%
Composite-10 -12.8% 1.3%
CA-San Diego -12.3% 2.0%
GA-Atlanta -11.8% 1.6%
NY-New York -10.4% 0.9%
DC-Washington -9.8% 1.6%
NC-Charlotte -9.0% 0.1%
MA-Boston -5.0% 0.6%
CO-Denver -3.0% 0.6%
TX-Dallas -1.6% 0.6%
OH-Cleveland -1.4% 0.8%
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Categories: Housing Sector, Inflation, US Tags:

US Economics Week Ahead: Markets Try to Find Traction in an Array of Data

September 25th, 2009 Michael McDonough 1 comment

There’s no doubt this week’s most important release will be Friday’s employment report, which is expected to show a decline in payrolls of -170K with an unemployment rate of 9.8%.  This week could prove critical as markets try to regain some traction after several negative surprises last week, including lower than anticipated existing home sales and durable goods orders.  However, looking at the docket this week (and possibly the months ahead) may hold slightly more downside risk than upside as the effects of the Cash for Clunkers program continues to fade, and the first time home buyer credit ticks closer to expiration come the end of November.  Other heavy hitters to watch this week include Tuesday’s consumer confidence report, Wednesday’s Chicago PMI release, and jobless claims, ISM, and personal income and outlays on Thursday.

Ending on a more positive note, the US is expected to return to positive GDP growth starting in 3Q09 on the back of improvements in the inventory cycle stemming from a slower rate of destocking.  However, the magnitude and longevity of this return to growth will be strongly dependent on consumer demand returning to the market.

Here is the rest of this week’s US calendar:

Monday September 28th:

8:30AM: Chicago Fed National Activity Index for July (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding six months and is expected to improve again in August from its reading of -1.7 in July.

10:30AM: Dallas Fed, Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested “that factory activity continued to contract at a slower pace in August.”

Tuesday September 29th:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly decline of -2.0% in store sales compared to an increase of +0.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -2.6% last week on a year over year basis.

9:00AM: S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The Case Shiller HPI has shown some signs of life rising 1.4% in June with only Las Vegas and Detroit experiencing monthly declines.  But, on a year over year basis both the Case-Shiller 10 and 20 city composite indices are still down over 15%.  Nevertheless, the index will likely show a modest monthly improvement in July on the back of relatively strong housing activity.

9:50AM: Richard Fisher, Dallas Federal Reserve Bank President, gives a speech on the state of the economy.

10:00AM: Consumer Confidence (Risk: Negative, Market Reaction: Significant): Recent advances in other consumer confidence indicators, including Reuters/UMich Consumer Sentiment Index, should help add some upward momentum to the Conference Board’s September Consumer Confidence number.   A weak labor market is still a big concern for consumers, however, indications that the economy may be improving will likely not go unnoticed.  The current Bloomberg consensus forecast is for an increase to 57.0 from August’s number of 54.1.

10:00AM: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk.  According to the State Street report, “[August’s] increase represents the eighth consecutive improvement in Global Investor Confidence, and places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures,” They went on to say. “At the same time, the rate of increase in the Index has moderated relative to some months ago, suggesting that institutions are being somewhat selective in their allocations.”

3:00PM: Farm Prices (Risk: Neutral, Market Reaction: Marginal): Given the relationship between farms prices and food prices, this index could have significant implications on future headline CPI.

7:00PM: Charles Plosser, Philadelphia Federal Reserve Bank President, is speaking on Fed’s role in the economy at the Lehigh Valley Economic Outlook

Wednesday September 30th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed an increment of 12.8% on higher refinancing activity stemming from mortgages rates slipping below 5%.  The refinance index rose 17.4%, while the purchase index rising 5.6%.Refinances made up 63.8% of all applications last week.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -298K, while payrolls declined by only -216K.

8:30AM: GDP (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey, the BEA’s final estimate of 2Q09 GDP is likely to come in at -1.2%, compared to the preliminary estimate of -1.0%.  The culprits behind the anticipated slippage are faster inventory liquidation and weaker net exports. GDP is widely expected to turn positive in 3Q09.

9:45AM: Chicago PMI (Risk: Negative, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  Adverse effects from strong seasonal adjustment factors could cause this index to surprise on the downside.  The current Bloomberg consensus forecast is for an increase to 52.0 in September versus 50.0 in August.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices. The new orders index broke above 50 in August for the first time in 11 months.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a rise of 2.8mn barrels versus a decline of -4.7mn barrels a week prior.

Thursday October 1st:

Motor Vehicle Sales (Risk: Negative, Market Reaction: Moderate): Auto sales will likely face a sharp pullback in September, no longer benefitting from the US government’s Cash for Clunkers program.  The current Bloomberg consensus is forecasting 8.0mn domestic sales for September, versus a 10.1mn annual pace in August.  Despite the precipitous drop, the y/y decline should be less now than it was prior to the Cash for Clunkers program, which is somewhat positive.

Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): This survey conducted by Monster Worldwide Inc. measures online job demand.

7:30AM: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Moderate): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs could be announced in September, but not take place until October, or may even take place slowly over an extended period of time.

8:30AM: Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): The temporaneous effects of the Cash for Clunkers program have likely lead to a significant increment in consumer spending for August, with the Bloomberg consensus forecast anticipating a 1.1% monthly increase, higher energy prices may have also had a marginal impact.  Personal income will likely turn slightly positive for the month on the back of higher average wages; the current Bloomberg consensus forecast is for a monthly increment of 0.1% versus no change last month.  The core PCE is expected to rise 0.1%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 21K to 530K. Initial claims should continue to demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 537K. The anticipated increment for claims may still be due to seasonal adjustment effects stemming from the later than usual Labor Day Holiday.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): In August the ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the breakeven point of 50 since January 2008.  Looking to September, the current Bloomberg consensus forecast is for a reading of 53.5, which I personally believe may be slightly optimistic.  Nevertheless, the new orders index did jump last month to 64.9 from 55.3.  With that in mind it will be very important to pay close attention to September’s new orders and employment index, which could help set the tone for the overall report.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): According to the Bloomberg consensus survey construction spending is expected to fall -0.1% in August versus a decline of -0.2% in July.  Non-residential construction should continue placing the strongest downward pressure on the overall index, while residential construction spending also has the potential to move into negative territory after gaining 2.3% in July and 0.4% in June on a strengthening housing market.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 3.2% in June, realizing its sixth consecutive monthly gain.  However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

10:30AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet rose again last week to US$2.141trn from US$2.125trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

5:30PM: Sandra Pianalto, Cleveland Federal Reserve Bank President, is speaking at a Market News international seminar in NY.

Friday October 2nd:

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -170K for September, compared to a decline of -216K in August.  However, it is important to keep in mind that a later than usual Labor Day could lead to some discrepancies in this month’s data.  Nevertheless, we should see an improvement from last month’s declines.  According to the Bloomberg consensus forecast the unemployment rate is expected to rise to 9.8% from 9.7%.

10:00AM: Factory Orders (Risk: Negative, Market Reaction: Moderate): The current Bloomberg consensus forecast is for an increment in factory orders of 1.0% in August, versus +1.3% in July.  However, unexpected weakness in last week’s durable goods release on Friday may cause some revisions to this number.

Enjoy the weekend!

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Finding a Complement to the BDI May Lie in the Rails…

September 24th, 2009 Michael McDonough Comments off

Carrying over from a theme I mentioned earlier this week in my column on thestreet.com, I began contemplating what frequent transportation index, if any,  would be a good complement the BDI as a forward looking indicator toward the global economy. My goal was to find something that could perhaps help factor out the impact of some of supply glut in dry bulk shipping sector.  What I mean is I wanted to find something that if moving up in conjunction with the BDI would almost certainly be good news for the global economy.  Concurrently, if the BDI was to remain static while the complementary index rallied, we might get some insight into the over supply of ship’s impact on the BDI.    After a few moments of thought I believe I found that index.

The major rail companies in North America release a weekly metric on railroad performance, which among other things measures the total number of rail cars on line.  I briefly mentioned this index in a piece I published several weeks ago, showing the strong correlation between CSX’s cars online and the BDI (see chart).

CSX vs. BDISource: Bloomberg, Capital Link, CSX

However, to get a true gauge of potential economic performance we would need to include more than just CSX, hence I created an aggregate index with car on line data from the following companies:  BNSF Railway Company, Canadian Pacific, CSX Transportation, Kansas City Southern, Norfolk Southern, and Union Pacific Railroad.  Once you factor in these additional companies the relationship becomes far less apparent (see chart).

Rail Volumes vs. BDISource: Bloomberg, Capital Link, Railroad Companies

The reason behind this will be fodder for another article, but it is possible that CSX has a higher exposure to the commodities, which were in high demand from China.  Nevertheless, what has been a horrible year in terms of aggregate rail volumes looks to be bottoming.  I recently heard from executives running most of the companies within this aggregate index, and in general their outlooks confirmed a possible bottom, but by no means a rapid recovery.  They were are also optimistic regarding the effects a potential record US harvest could have on rail volumes, a view echoed by participants in the panamax sector.  Finally, this is more or less in-line with my view that the US and developed nations will return to growth, albeit at a measured pace, with developing nations outpacing the developed world.  Now, lets see if the BDI and rail car volumes will agree…

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Existing Home Sales Show Unexpected Decline

September 24th, 2009 Michael McDonough 1 comment

Existing home sales for August fell by 2.7% to a 5.10mn annualized selling rate, compared to a Bloomberg consensus forecast of 5.35mn and a rate of 5.24mn in July.This is the first time in four months the index has experienced a decline. Single-family sales declined 2.8% in August to a rate of 4.48mn versus 4.61 million in July, while multi-family sales diminished 1.6% in August to 620,000 versus 630,000 in July.  Median existing home prices fell to US$177,700 in August from US$181,500 a month prior.  Despite weakness in the sales data the inventory of existing homes fell to 8.5 months from 9.3 months in July.

Presently it is hard to say what could have caused this unexpected decline, it could be an anomaly in an otherwise improving trend.  Alternatively, as the Cash for Clunker’s program neared its end most consumers looking to take advantage of it had already done so.  With this in mind, the US first time home buyer tax credit is set to expire in November; it may be possible a portion of buyers looking to take advantage of this program may have already purchased their homes.  However, given that this is August data, and still relatively far off from November, I would be surprised if this had much of an effect.  Nevertheless, it is something that should continue to be monitored in the months ahead.  Increasing unemployment is also still providing some pretty strong headwinds toward the sector.  New home sales will be released tomorrow.

In other news, initial jobless claims came in better than anticipated this morning declining by21K to 530K.

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FOMC Announces No Change… Fed’s Purchase of Long-Term Treasuries Will End As Planned In Oct…

September 23rd, 2009 Michael McDonough Comments off

Overall, the statement seems more upbeat in terms of economic activity, but seems to place a potentially higher risk of deflation, “With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.”

The Fed reiterated they will end the long-term treasury purchase program as originally  planned by the end of October.  However, “Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.”

Finally, “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Press Release

Federal Reserve Press Release

Release Date: September 23, 2009

For immediate release

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.  Conditions in financial markets have improved further, and activity in the housing sector has increased.  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.  Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.  As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

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Potential Market Negatives Part 4: A Word From the Wise

September 18th, 2009 Michael McDonough Comments off

Extreme DangerThe FT’s Alphaville published an interesting article today highlighting a piece by Gluskin Sheff’s chief economist and strategist David Rosenberg that set out to answer the question; who is buying into the current rally?  I think the piece is both timely and informative, and I recommend you give it a read:  Just who is buying this rally?

In a nutshell he concluded that, “Very likely it is still a combination of program trading, short coverings and portfolio managers desperately trying to make up for last year’s epic losses.” If correct, this isn’t much of a foundation.

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US Economic Week Ahead: Big Ben & His Men (& Women)…

September 18th, 2009 Michael McDonough Comments off

Undoubtedly the most important item on this week’s calendar will be Wednesday’s FOMC announcement, which is highly unlikely to show any changes to the current policy stance.  But, as always, the market will be paying close attention the wording of the FOMC’s statement, which turned slightly more constructive last month indicating that financial markets have improved and that economic activity had begun to ‘level out’.  But, there is a possibility that the FOMC could provide some additional information regarding the fate of its Treasury purchase program.  The program is currently set to slowly expire by the end of October.  This week’s other notable indicators include new and existing home sales, which are both expected to rise for the fifth consecutive month.  In addition home builders Lennar Corp. (LEN) and KB Home (KBH) are scheduled to release earnings on Monday and Friday, respectively.  The market will also be being paying attention to Friday’s durable goods release, which should show continued strength in August due to support from the US government’s Cash for Clunkers program.  Finally, G20 nations will be meeting on Thursday and Friday in Pittsburgh, PA to discuss a variety of topics that could drive some headlines.

Here is the rest of this week’s US calendar:

Monday September 21st:

10:00AM: Leading Indicators (Risk: Neutral, Market Reaction: Moderate): August’s leading economic indicator will likely experience its fifth consecutive month of positive readings, helping to confirm Ben Bernanke’s recent comments that the recession has ended.  The current Bloomberg consensus forecast is for a gain of +0.7%, compared to an increment of +0.6% in July.  Stock prices, the yield curve, and vendor performance should have the largest positive impact on the index for the month, while money supply and jobless claims will add some negative pressure.  The LEI is a good forward looking indicator toward future industrial production and ISM performance.

Tuesday September 22nd:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated no change in store sales compared to an increase of +0.6% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -1.9% last week on a year over year basis.

10:00AM: FHFA House Price Index (Risk: Neutral, Market Reaction: Marginal): The Federal Housing Finance Agency (FHFA) monthly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s.  The FHFA’s monthly purchase only index gained of 0.5% in June with May’s number being revised up to +0.6%.  The monthly index tends to be relatively volatile, but should continue to trend up in-line with the Case-Shiller home price index.

10:00AM: Richmond Fed Survey of Manufacturing Activity (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, and should remain there this month based on what has been a strong new orders component.   The overall current conditions index was unchanged in August from July at 14.

Wednesday September 23rd:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed a decline of 8.6% due to the effects of the shortened week.  The refinance index fell 7.4%, while the purchase index dropped 10.3%. These declines were likely due to the shortened Labor Day week, and slightly higher, albeit relatively low, mortgage rates.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of -4.7mn barrels versus a decline of -5.9mn barrels a week prior.

2:15AM: FOMC Meeting Announcement: The market is unlikely to witness any drastic deviations in Fed policy this month with the target range remaining between 0.0% and 0.25%.  But, the market will be looking for any changes to wording in the Fed’s policy statement that could indicate a more constructive outlook for US economic activity or financial markets.  The Fed may also make an announcement regarding the fate of its Treasury purchased program, which is set to expire at the end of October.  The FOMC had this to say about the program in its last statement, “To promote the a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchases by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.”

Thursday September 24th:

G-20 Conference Begins in Pittsburgh PA

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 5K to 545K. Initial claims should continue to demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 550K. The marginal forecasted increment is still due to the potential seasonal effects of the later than usual Labor Day Holiday.

10:00AM: Existing Home Sales (Risk: Neutral, Market Reaction: Significant): A strong pending home sales number in July should help continue the upward momentum for August’s existing home sales.  The current Bloomberg consensus forecast is for an increase to 5.35mn from 5.24mn in July.  Existing home sales have risen for four month consecutive months, reaching a two-year high in July, which will likely be usurped by August’s data.

10:30AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

1:00PM: Christina Romer, Chair of the White House Council of Economic Advisers is giving the keynote address to the Chicago Federal Reserve Bank’s International Banking Conference

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet rose again last week to US$2.125trn from US$2.072trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday September 25th:

8:30AM: Durable Goods (Risk: Neutral, Market Reaction: Significant): The US government’s Cash for Clunkers program should continue to help bolster August’s durable goods orders, which according to the Bloomberg consensus forecast is anticipated to rise by 1.0%, compared to July’s increment of 4.9% stemming from strong civilian aircraft activity.

9:55AM: Consumer Sentiment (Risk: Negative, Market Reaction: Significant): The current Bloomberg consensus forecast is anticipating no change in September’s Reuter’s/University of Michigan’s Consumer sentiment index compared to the month’s preliminary reading of 70.2.  However, a paradoxical comment by the index’s publisher earlier this month highlighted consumers’ concerns over their individual situation, which I believe could adversely impact the index.  The comment said, “Confidence rebounded in early September as consumers increasingly expected the economy to improve despite their reluctant conclusion that their own financial situation would remain quite problematic for some time.”

10:00AM: New Home Sales (Risk: Neutral, Market Reaction: Significant): As with existing home sales, new home sales should rise in August, with the current Bloomberg consensus forecast anticipating a rise to 445K from 433K in July.  Last month was the index’s fourth consecutive increment.  It will also be important to pay close attention to the inventory of new houses, which fell in July to 7.5 months from 8.5 in June; this was the lowest reading since April 2007.  Going forward it will be important to monitor whether or not the US first time home buyer program is extended.  It is presently scheduled to expire on November 30th, and has likely had a positive contribution on the housing market.  Some reports have indicated that 25% of total home sales may be attributable to the program.

1:15PM:  Kevin Warsh, Federal Reserve Board Governor is set to speak at the Chicago Federal Reserve Bank’s International Banking Conference

Enjoy the weekend!

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