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US Week Ahead: Where’s the Upside?

August 15th, 2009 Michael McDonough

This week will provide us with our first peak into this month’s manufacturing and housing sector data with Monday’s Empire State Manufacturing Survey and NAHB/Wells Fargo Housing Market Index. They will be followed up later in the week with the Philly Fed manufacturing survey, and both housing starts and existing home sales on the housing front.  Investor’s will be looking for indications that recent improvements in the housing sector are sustainable.  In addition to these housing indicators both Lowes and Home Depot are scheduled to release earnings this week.  Also be on the lookout towards the beginning of the week for the release of the Fed’s Senior Loan Officer Survey, which could be published Monday or Tuesday.  It is generally anticipated that July’s leading economic indicator index, released on Thursday, will post its fourth consecutive month of gains.  This is particularly good news when you consider that this index is a good forward looking indicator toward factory orders, industrial production, and the ISM.  Unfortunately, after last week’s disappointing consumer sentiment release, there won’t be much data that could help clarify the trend in consumer behavior, but I recommend paying continued close attention to the claims data, as weakness in the labor market has been the consumers’ Achilles heel.

Monday August 17th:

8:30AM: Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): This is the month’s first window into the manufacturing sector, and based on what has been an upward trend could for the first time in roughly a year register in positive territory.  The current Bloomberg consensus forecast is a reading of +5.0 for August, compared to last month’s reading of -0.6%.  The index measures manufacturing activity within the jurisdiction of the New York Fed.  I also recommend paying close attention to movements in the new orders index (previously +5.9), which tends to be forward looking and the employment (previously -20.8) and prices paid (previously 10.4) sub-components.

Empire Survey Diffusion Indices:

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9:00AM: Treasury International Capital Data (Risk: Neutral, Market Reaction: Marginal): 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.

1:00PM: Housing Market Index (Risk: Neutral, Market Reaction: Moderate): The NAHB/Wells Fargo Housing Market Index will be the first housing related data released this month, and is expected to show a modest gain on the back of tax credits, attractive mortgage rates, and low home prices.  The current Bloomberg consensus forecast is for a reading of 18, compared to the previous month’s result of 17.  This index measures builders’ views over the conditions of the housing market; any reading below 50 implies their view is negative.  The index remains depressed primarily due to, improving, but still massive inventory levels.

Tuesday August 18th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, 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 over the previous week.

Starts8:30AM: Housing Starts (Risk: Neutral, Market Reaction: Significant): July’s Housing starts and permits should see another increment this month on the back of an increase in June’s new home sales.  The current Bloomberg consensus forecast for starts is 0.605mn compared to the previous month’s release of 0.582mn.  Although improving, it is important to remember that this index remains well below its historical average and is indicative of a weak housing market.

8:30AM: Producer Price Index (Risk: Neutral, Market Reaction: Significant): Lower energy prices will likely place some downward pressure on July’s headline PPI number.  The current Bloomberg consensus is for a reading of -0.3% compared to the previous month’s increment of +1.8%.  The core PPI could see a modest gain on the back of auto and tobacco prices, with a current Bloomberg consensus of +0.1% compared to the previous month’s increase of +0.5%.

Wednesday August 19th:

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 the overall index decline 3.5%; while the refinance index dropped 7.2% and the purchase index rose 1.1% on the back of relatively low mortgage rates and declining home prices.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase of inventories of 2.5mn barrels after rising 1.7mn a week prior.

Thursday August 20th:

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims unexpectedly rose last week by 4K to 558K. Despite last week’s small increment, claims should continue to marginally improve 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.  The current Bloomberg consensus for this week’s initial claims number is 550K.

Source: The Conference Board

Source: The Conference Board

10:00AM: Leading Indicators (Risk: Neutral, Market Reaction: Moderate): July’s leading economic indicators index will likely experience its fourth month of gains with a Bloomberg consensus forecast of +0.7%.  The yield curve, jobless claims, and average work week should the biggest supporters this month’s index, while the University of Michigan’s consumer expectations index will likely act as a drag.  The LEI tends to be a good forward looking indicator toward factory orders, industrial production, and the ISM.

10:00AM: Philly Fed Survey (Risk: Downside, Market Reaction: Moderate): The Philly Fed Index will likely remain negative in August with a Bloomberg consensus forecast of -1.0, compared to July’s reading of -7.5.  This index measure’s manufacturing activity within the Philadelphia Fed’s jurisdiction.  Look for further improvements in the new order’s sub-index (previously -2.2), which tends to be a good forward looking indicator for the overall index, but still remains in negative territory.  Given its recent trends, this index should turn positive some time during 2H09. I also recommend paying close attention to the employment (previously -25.3) and prices paid (previously -3.5) indices.

10:00AM: 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.  Last week the Fed’s balance sheet moved back below continued to decline falling toUS$1.999trn from US$1.974trn 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 helping to control interest rates.

Friday August 21st:

Existing10:00AM: Existing Home Sales (Risk: Neutral, Market Reaction: Significant): An increase in pending home sales in June will likely provide some upward pressure for July’s existing home sales index.  The current Bloomberg consensus forecast is for existing home sales of 5.0mn on a SAAR basis compared to the previous month’s sales of 4.89mn.  Existing home sales have been on the rise since April.

10:00AM: Federal Reserve Chairman Ben Bernanke is giving a speech on ‘the Year of Crisis’ at the Kansas City Fed’s annual Jackson Hole conference.

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