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US Economics Week Ahead: A Shortened Week with a Big Punch

Written by

MikeMcD82

Despite a holiday on Monday, we have a busy week on all fronts, combing a deep economic calendar with a flurry of critical earnings releases.  On the economics front the two most important indicators are retail sales on Wednesday and CPI on Thursday.  September’s retail sales could face some negative pressure on the back of the termination of the ‘Cash for Clunkers’ program, while the CPI should remain well within comfortable levels.  Other indicators of note are the FOMC minutes, the Philly and NY Fed manufacturing surveys, consumer sentiment, and industrial production.

There have also been indications that the government may extend and even expand the first time home buyer tax credit.  This would be an important development as estimates indicated that 25% of recent home sales may be attributable to the program.  But, if you recall, the impact from the ‘Cash for Clunkers’ program diminished significantly after its first extension as those wanting to take advantage of the program already had. However, the clunkers program was only extended and not expanded.  The bottom line is the housing sector facing growing foreclosure levels and a weak labor market can still use all the help it can get and any extension to the program would be a positive.

But, earnings releases from several major banks and technology companies could usurp the market’s attention away from the economic indicators.  Some of the week’s main releases will be coming from Intel Corp (INTC) and Johnson & Johnson (JNJ) on Tuesday, JPMorgan Chase & Co (JPM) on Wednesday, Goldman Sachs (GS) and IBM (IBM) on Thursday and Bank of America (BAC) and General Electric (GE) on Friday.  Additionally, the Senate Finance Committee is set to vote on Tuesday on the Baucus Bill for healthcare reform.

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

Monday October 12th:

Columbus Day Holiday

Tuesday October 13th:

7:30AM: Christina Romer, Chair of the Council of Economic Advisers, will speak at the NABE annual meeting

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 increment of 0.3% in store sales compared to a gain of 0.1% 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.

12:00PM: Donald Kohn, Federal Reserve Vice-Chair, will speak at the NABE annual meeting

1:15PM: William Dudley, NY Federal Reserve Bank President, will speak at the Institute of International Bankers.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg consensus for September’s US government budget deficit is –US$31.0bn compared to –US$111.4 a month prior.  Large deficits have led to record levels of US treasuries auctions, which in some instances have placed downward pressure on rates and in a few cases the growing deficit has even sparked some mild concerns over the US’s risk free credit rating. To help put this into perspective; year to date the government’s budget deficit has totaled US$1.378trn compared to $500.5bn a year ago.  Historically, during the month of September the government’s budget shows a strong surplus due to quarterly filings and corporate returns.

Wednesday October 14th:

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 jump of 16.0% on the back of lower mortgage rates.  The refinance index climbed 18%, while the purchase index rose 13%. Refinances made up 66.3% of all applications last week.

8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): September’s retail sales data should face some downward pressure mostly stemming from the end of the US government’s ‘Cash for Clunkers’ program.  New auto sales collapsed in September to an annual pace of 9.2mn units from 14.1mn in August.  Excluding autos retail sales will likely remain flat for the month.  The current Bloomberg consensus is for the headline number to fall by 2.1%, and for the ex-auto numbers to rise 0.3%.

8:30AM: Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): Import prices likely remained steady in September with a decline in oil prices offsetting increments in other commodities.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Marginal): Both wholesale and factory inventories declined in August, which likely indicates business inventories fell during the month.  Additionally, increased auto sales likely led to significant reductions in auto inventories that will be reflected in the month’s data.  The current Bloomberg consensus forecast is for a decline of 0.9% after falling 1.0% in July and 1.4% in June.

2:00PM: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): Investors will be paying close attention to the details behind the Fed’s plan to terminate, albeit at a slower pace, its 1.25trn agency mortgage-back securities purchase program.  In addition to this investors will be looking for any clarification regarding the following sentence in the FOMC statement, “The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.”

Thursday October 15th:

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): September’s headline and Core-CPI numbers likely only experienced only marginal gains for the month.  The current Bloomberg consensus forecast is for an increment of 0.1% for the headline number and 0.1% for the core release.  This data should help quell inflation rhetoric for at least another month.   One of the month’s largest price increases will probably come from new vehicles as the ‘Cash for Clunker’ tax credit discounts will no longer be applied.

8:30AM: Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): October’s Empire State Manufacturing Survey will likely be little changed from last month, with the current Bloomberg consensus forecast indicating a reading of 18.9, the same as September.  This would be the index’s third consecutive month above 0, which indicates gains for manufacturing in the NY region.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell substantially last week by 33K to 521K. It is unclear whether or not this is the start of a significant improvement trend in claims or just a seasonal quirk.  Therefore, it will be important to monitor the 4wk moving average and the coming weeks’ releases.  Last week, the 4wk moving average declined to 539,750 from 548,750, this is the lowest level since January.  Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus is expecting a modest improvement for this week’s initial claims release to 520K from 521K.

10:00AM: Philly Fed Survey (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey October’s Philadelphia Fed manufacturing survey is expected to fall slightly to 12.5 from last month’s release of 14.1.  Despite the expected decline, this would be the survey’s third consecutive month in positive territory.  It will also be important to monitor the new orders sub-component, which slipped slightly in September to 3.3 from 4.2 a month prior.  The employment index should remain well in negative territory.

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.

11:00AM: 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 1.0mn barrels versus an increment of 2.8mn barrels a week prior.

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 again declined last week to US$2.120trn from US$2.123trn a week prior.  The main catalyst behind the drop was a decrease in central bank liquidity swaps as demand for US$ falls.  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 October 16th:

9:00AM: Treasury International Capital (TIC) Data (Risk: Neutral, Market Reaction: Moderate): This report highlights the flow of financial instruments to and from the U.S. It indicates foreign demand for U.S. financial instruments and thus tends to have a stronger impact on the dollar and the bond markets than it does on equities.  But, given the recent record levels for treasury auctions, it will be interesting to monitor foreign demand for US debt.

9:15AM: Industrial Production (Risk: Negative, Market Reaction: Significant: The current Bloomberg consensus survey is forecasting an increment of 0.2% for industrial production in September after gaining 0.8% in August and 1.0% in July.  A large portion of last month’s gain came from the restocking of auto inventories.  But, a 0.5% decline in manufacturing hours worked in September coupled with a drop off in car sales could place negative pressure on September’s release.  The consensus forecast indicates there will be no change in capacity utilization, which is expected to remain at 69.6%.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): The Bloomberg consensus forecast is presently anticipating that October’s preliminary consumer sentiment number will come in at 74.0, compared to a prior reading of 73.5.  A weakening labor market offset by strong equity performance and marginally weaker energy prices during the month makes the possible outcomes of this month’s sentiment release somewhat volatile.  The range for the Bloomberg consensus forecast presently stands between a low of 71.0 and a high of 76.0.

10:15AM: Richard Fisher, Dallas Federal Reserve Bank President, will deliver the keynote address at a conference co-sponsored by SMU’s Cox School of Business

Enjoy the weekend!

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