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

Written by

MikeMcD82

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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