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US Economics Week Ahead: Nothing’s Certain

January 23rd, 2010 Michael McDonough Comments off

Over the past two weeks new uncertainties have begun pouring into the markets, like the deluge of rain currently striking the west coast—I spent part of last week in Los Angeles.  However, unlike what’s happening over the west coast, the storms investors faced were mostly avoidable.   It all began with legitimate concerns over tightening Chinese monetary policy, but quickly moved to the avoidable with doubts over the reconfirmation of Chairman Bernanke, and the potential impact of President Obama’s imprudent policy agenda toward the financial sector.  Barring these uncertainties, this week’s full calendar of economic and earnings data should help shed some light on the health of the U.S. economy and the sustainability of the current recovery.

On the economic side, this week’s main event should be Wednesday’s FOMC announcement, where the fed should continue making incremental changes to the statement bringing us closer to tightening—which I still believe is a ways off.  However, the meeting may be trumped by news of Chairman Bernanke’s reconfirmation, which could take place as early as this week.  Despite what is turning into a bit of a political circus I do expect Mr. Bernanke will be reconfirmed.

Moving away from the Fed the market will be focusing on the first estimate of fourth quarter GDP on Friday, and critical housing data being released throughout the week.  GDP growth should exceed 4%, but many will argue over the sustainability of this growth, which is being heavily supported by accommodative fiscal and monetary policies.  Housing data will likely be mixed with December’s existing home sales coming under some pressure after the would-be expiration of the first time home buyer tax credit.

On the earnings front we should be hearing from almost a quarter of the S&P 500 with some big names including Amazon (AMZN), Apple (AAPL), AT&T (T), Boeing (BA), Caterpillar (CAT), Chevron (CVX), and Raytheon (RTN), Research In Motion (RIMM),Verizon (VZ), Yahoo (YHOO).  Other items that will likely drive headlines this week include President Obama’s State of The Union Address, the World Economic Forum in Davos, and an Apple product release (a tablet computer?).  Finally, the central banks of Japan (Monday & Tuesday) and New Zealand (Thursday) are schedule to meet next week, and could drive some headlines

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

Monday, Jan. 25

10:00 a.m. EST: December’s Existing Home Sales (Risk: Negative, Market Reaction: Significant): What would have been the expiration of the first time home buyer tax credit in November could place some downward pressure on December’s existing home sales.  The original rush of home buyers, looking to take advantage of what was an expiring program, have already finished their purchases.  The extension/expiration of the program should eventually help stoke sales, but there will likely be a delay before a new group of home buyers enters the market.  I should also note that increased foreclosure activity during the month, combined with what I anticipate will be weak sales, could increase the inventory of homes for sales.  I expect we could also see some weakness in existing home values.  The current Bloomberg consensus forecast is for existing home sales to decline to 6.1 million in December from 6.5 million a month prior.  Recently, home buyers have been more enticed to purchase existing homes over new homes as they tend to be generally cheaper.  I should also note that the index of pending home sales plunged -16.0% in November, which is an ominous sign.

10:30 a.m. EST: January’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, but tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity was flat in December…. The production index, a key indicator of state manufacturing conditions, came in close to zero in December, suggesting output held steady after growing in November for the first time since July 2008.  All indexes for future activity strengthened substantially in December, suggesting a more upbeat six-month outlook. The majority of respondents expect increases in production, new orders and shipments in the next six months. The future business activity index climbed to its highest level in nearly three years, and 41%”

Tuesday, Jan. 26

FOMC Meeting Begins

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Last week’s number rose 2.0% compared to a drop of -3.0% a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, 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 rose 0.9% last week on a yearly basis.

9:00 a.m. EST: November’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): It will be interesting to see what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices.  Will sellers looking to sell their homes prior to the expiration have lowered prices or would a surge of buyers on the market help buoy home prices?  In October the Case Shiller Home Price Index ended five consecutive months of gains, lending some credence to the argument home sellers be lowering prices to liquidate their homes.

10:00 a.m. EST: January’s Consumer Confidence (Risk: Neutral, Market Reaction: Moderate): Consumers continue to face a barrage of headwinds and tailwinds, which makes forecasting a rather volatile consumer confidence index a tough task.  Nevertheless, I anticipate that tailwinds will have a slight edge this month marginally pushing up the index.  The current Bloomberg consensus forecast is for a reading of 53.5, versus 52.9 in December.  Most of this index’s strength has been coming from its expectations component, while the present conditions index has moved back near interim lows.  This index tends to be closely correlated with ABC News comfort index and the Reuters/University of Michigan consumer sentiment index.

10:00 a.m. EST: November’s FHFA House Price Index (Risk: Neutral, Market Reaction: Marginal): Unlike the Case Shiller Index the FHFA House Price Index rose by 0.6% on a monthly basis in November.  However, like the Case Shiller Index, it will be interesting to monitor what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices.

10:00 a.m. EST: January’s 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 in December, “This month’s up-tick in global investor confidence stemmed largely from an improvement in the mood in Asia, where risk appetite rose to an eight-month high,” commented Froot. “Elsewhere portfolio reallocations were modest. With three of the four indices over the neutral level of 100, institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year. Investors will be watching for signs of renewed economic growth, and well-designed exit strategies from policy makers, before making more significant reallocations towards risk in 2010.”

10:00 a.m. EST: January’s Richmond Fed’s Survey of Manufacturing (Risk: Neutral, Market Reaction: Marginal): The survey hit a soft patch last month after seven months of expansion.  According to the report, “Manufacturing activity in the central Atlantic region pulled back in December from positive territory after expanding during the previous seven months, according to the Richmond Fed’s latest survey. All broad indicators of activity — shipments, new orders and employment — landed in negative territory. Most other indicators also suggested additional softness. Capacity utilization turned negative following seven months of improvement, while backlogs held steady. Vendor delivery times were virtually unchanged, while manufacturers reported slightly quicker growth in inventories.”

Wednesday, Jan. 27

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 9.1% last week after rising 14.3% a week prior.  Refinance applications jumped 10.7%, while purchase applications rose 4.4%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.   The 4wk moving average of all mortgages was down 1% through the week of January 15th.

10:00 a.m. EST: December’s New Home Sales (Risk: Negative, Market Reaction: Significant): Unlike, existing home sales, new home sales could experience a bit of a bounce in December after several months of relatively low readings.  However, the sharp drop-off in pending home sales(-16% in November) combined with what would have been the expiration of the first time home buyer tax credit could place some pressure on the index, despite a rather optimistic consensus forecast.  It is true that the tax credit had a larger impacted on existing, but I anticipate there should be at least a marginal impact.  The current Bloomberg consensus forecast for new home sales is 372K in December, versus 355K in November.

10:00 a.m. EST: December’s Mass Layoff Activity (Risk: Neutral, Market Reaction: Marginal): This data from the BLS will likely continue to show that mass layoff activity is subsiding.

10:00 a.m. EST: Timothy Geithner, the U.S. Treasury Secretary, testifies before House Oversignt Committee on AIG

10:30 a.m. EST: 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’s report showed a decline of -0.4 million barrels versus a rise of 3.7 million barrels a week prior.

2:15 p.m. EST: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): It is hard to say whether the outcome of this meeting or the situation around Mr. Bernanke’s reconfirmation will garner more headlines in the press.  With that said I expect no change in policy, and nothing more than incremental changes to the FOMC’s statement (i.e. acknowledging recent improvements and highlighting risks).  I should also note that given this is the first meeting of 2010 the Fed will have a new voting rotation.  For those interested the new voters will be Boston’s Eric Rosengren, Cleveland’s Sandra Pianalto, St. Louis’ James Bullard, and Kansas City’s Thomas Hoenig.  As a side note, if Chairman Bernanke was not to be reconfirmed and Vice-Chairman Donald Kohn was to take his place, Kohn’s term is set for renewal by President Obama in June, which in theory could create another circus.  I personally expect Mr. Bernanke will be reconfirmed, but sadly I don’t have a vote.

9:00 p.m. EST: President Obama delivers his State of the Union Address to Congress

Thursday, Jan. 28

8:30 a.m. EST: December’s Durable Goods Orders (Risk: Neutral, Market Reaction: Moderate): Stronger aircraft orders during the month should help bolster the index after rising 0.2% in November.  The current Bloomberg consensus is for an increase in December’s durable goods orders of 2.0%—I believe this may be slightly optimistic.

8:30 a.m. EST: December’s Chicago Fed National Activity Index (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 been generally trending up over the preceding ten months, and could show a marginal improvement in December from its reading of -0.32 in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose an unexpected 36K last week to 482K, after rising 11K a week prior.  The four week moving average rose to 448,250 from 440,750.  An improving trend in initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, given the still elevated number of claims the job situation will get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 440K on Thursday.

10:30 a.m. EST: 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.

11:00 a.m. EST: Kansas City Fed’s Manufacturing Survey (Risk: Neutral, Market Reaction: Marginal): Manufacturing growth remained positive, but moderate somewhat in the region in December.  According to the survey, “Growth in Tenth District manufacturing activity moderated somewhat in December, and producers were slightly less optimistic about the months ahead, with few planning major capital expenditures. Price indexes remained mostly stable.”

4:30 p.m. EST: 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 fell from a record $2.274 trillion to $2.233 trillion last week.  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, Jan. 29

8:30 a.m. EST: First Estimate 4Q09 GDP (Risk: Neutral, Market Reaction: Significant): The current Bloomberg Consensus forecast is for fourth quarter GDP growth to come in at 4.5%, versus 2.2% a quarter prior.  Personally, I believe this forecast may be slightly too optimistic, and expect the number to be closer to 4%.  Slower inventory liquidations combined with a jump in consumption should prove to be the quarter’s biggest growth engines.   While on the surface the number will look positive, questions will be asked about the sustainability of this growth.  A portion of this growth is still being supported through accommodative fiscal and monetary stimulus, which will eventually begin to wane.  For more on this please see my piece ‘Looking at 2010’s Outlook and Risks’.  I expect GDP growth to peak in either 4Q09 or 1Q10 then gradually diminish throughout the remainder of the year, albeit remaining positive.  In terms of the Fed, relatively tepid growth in a post recession period combined with ultra-high unemployment and subdued inflation should convince the fed to remain on hold through most of 2010.  After the release, don’t be surprised to see a barrage of experts analyzing the details for clues over the sustainability of this growth—you know where I stand.

8:30 a.m. EST: 4Q09 Employment Cost Index (Risk: Neutral, Market Reaction: Marginal): Mostly stagnant salaries and wages, offset by some potential increases in benefit payments, should lead to only a modest increment in fourth quarter employment costs.  In the third quarter the index rose 0.4% indicating that wage pressure remains relatively benign.

*9:45 a.m. EST: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could begin reacting to the data as early as 9:42 a.m.  The Chicago PMI is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 57.0, versus to 60.0 in December.  The PMI covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EST: January’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Moderate): January’s final consumer sentiment release will likely be mostly unchanged from the preliminary reading of 72.8.  The index has been trending up, but concerns over the job market and other adverse factors are limiting the upside.  The current Bloomberg consensus forecast is for a final reading of 73.0.

3:00 p.m. EST: January’s 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.

Enjoy the weekend!

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US Economics Week Ahead: Retail Sales & The Start of Earnings

January 8th, 2010 Michael McDonough Comments off

With employment out of the way—for now—onto earnings; Alcoa is scheduled to kick of the 4Q09 earnings season with its report on Monday.  Earnings might be stealing most of the show this week, but don’t count out economic data with the release of a critically important retail sales release on Thursday and a torrent of Fed speak prior to the blackout period for the Jan 26-27 FOMC meeting.  Speaking of the Fed the market will gain access to the Beige Book on Wednesday, which should continue to indicate marginal upticks in economic activity throughout the fed’s districts.  Other important releases include; Thursday’s jobless claims and business inventories; and Friday’s CPI, Empire State Manufacturing Survey, industrial production, and consumer sentiment releases.

Don’t ignore the fed speak.  It is my belief that as we move closer to a new fed tightening cycle the first indications of a shift in the Fed’s bias will come through subtle or maybe even not so subtle clues in fed officials numerous public speeches.  The next indicator will come in the form of the FOMC minutes, but that is another story for another day.  Given the weakness in last week’s employment report I still think we are a ways off from a new tightening cycle—November 2010—, but I am not the one making the decisions, so I recommend listening to Fed officials closely as we move closer to an inevitable move.

Other notable companies reporting earnings next week include Intel (INTC) and JP Morgan (JPM).  Next week will also see the opening of the Detroit Auto Show on Monday, where heavy focus is likely to be placed on small and hybrid vehicles.  Finally, I wanted to thank everyone who has recently emailed me regarding the usefulness of this piece.  Additionally, I invite anyone with any comments or recommendations on how to make the Economic First Look even more useful to please shoot me an email.

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

Monday, Jan. 11

12:40 p.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on the economy at the Rotary Club of Atlanta.

9:10 p.m. EST: James Bullard, the St Louis Federal Reserve Bank President, will speak in Shanghai.

Tuesday, Jan. 12

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Last week’s number rose +1.5% compared to an increment of +0.4% a week prior.  This week’s release will cover the first full in January.

8:30 a.m. EST: November’s International Trade (Risk: Neutral, Market Reaction: Moderate): I anticipate that November’s trade balance will widen slightly as likely imports rose at a faster pace than exports, due to higher energy import costs.  In October, export growth surprised to the upside leading to a marginal contraction in the trade balance. It is usually expected that both exports and imports rise during the start of an economic recovery, while the trade balance widens.  The current Bloomberg consensus forecast is for the trade balance to widen to -$35.0bn in November from -$32.9bn in October.

8:55 a.m. EST: Redbook (Risk: Neutral, 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 rose 1.6% last week on a yearly basis.

7:00 p.m. EST: Charles Plosser, the Philadelphia Federal Reserve Bank President, will give a speech on the economic outlook at the Entrepreneurs Forum of Greater Philadelphia.

Wednesday, Jan. 13

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 0.5% last week after plummeting -22.8% a week prior.  Refinance applications fell -1.6%, while purchase applications rose 3.6%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:30 a.m. EST: 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 an increase of 1.3 million barrels versus a drop of -1.5 million barrels a week prior.

12:30 p.m. EST: Charles Evans, the Chicago Federal Reserve Bank President, will speak at the Corridor Economic Forecast Luncheon.

2:00 p.m. EST: Beige Book (Risk: Neutral, Market Reaction: Significant): In the Fed’s previous Beige Book all of its districts reported at least modest upticks in growth, and I anticipate this trend will continue in the current release.  The report covers the last week in November though the first week of January.  The Beige Book is used as an input at the FOMC’s monetary policy meetings, meaning it shouldn’t be ignored by investors.

2:00 p.m. EST: December’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): December’s treasury budget will almost certainly show a record 15th consecutive month of deficits.  In November the monthly deficit totaled -$120.3 billion, bringing the government’s fiscal year to date total deficit up to -$296.7 billion.  December’s deficit may get some relief through TARP paybacks, but remain negative.  The current Bloomberg consensus forecast is for a deficit in December of -$92.0 billion.

Thursday, Jan. 14

8:30 a.m. EST: December’s Retail Sales (Risk: Neutral, Market Reaction: Significant): After rising 1.3% in November, retails sales should experience its third consecutive month of growth in December.  This growth will likely be led by strong vehicle sales during the month, which rose to a pace of 11.2mn vehicles during the month from a pace of 10.9mn units in November.  Excluding the auto component, retail sales should show some growth, but at a more moderate rate.  Of course any surprise to the upside in this data would be welcomed by the market.  The current Bloomberg consensus forecast is for retail sales to rise 0.4% in December, with retail sales ex-auto rising a more moderate 0.2%.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 1K last week to 434K, after falling 22K a week prior.  The four week moving average improved to 450,250 from 460,250.  This week’s strong seasonal adjustment factor—the strongest of the year in fact—could have some sway over the weekly report.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 437K on Thursday.

8:30 a.m. EST: Import and Exports Prices (Risk: Neutral, Market Reaction: Marginal): A decline in energy prices during the month and a modest appreciation in the US dollar will likely helped to bring down import prices in December.

9:00 a.m. EST: RBC CASH Index (Risk: Neutral, Market Reaction: Marginal): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released on Friday.

10:00 a.m. EST: November’s Business Inventories (Risk: Positive, Market Reaction: Moderate): Marginal attention is typically placed on this release, but this month the business inventories report takes on added significance. Economists use this release to help gauge the impact of the inventory cycle on fourth quarter GDP growth.  What this means is economists will be using this data to confirm or alter their fourth quarter 2009 inventory projections, which could sway fourth quarter GDP projections.  Many economists—including myself—expect the inventory cycle will play a lead role in the current recovery.  It is important to note that the manufacturing and wholesale inventory components of the report have previously been released and rose +0.2% and +1.5%, respectively.  Therefore, the report’s retail inventory component—the only unknown figure— is the most important for investors to watch.  The current Bloomberg consensus forecast is for a rise in business inventories of 0.2%.

10:30 a.m. EST: 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.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (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 shrank marginally last week to US$2.216trn from US$2.219trn.  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, Jan. 15

8:30 a.m. EST: December’s Consumer Price Index (Risk: Neutral, Market Reaction: Significant): Headline consumer prices likely rose in December, albeit at a slightly more moderate pace than the 0.4% rise in November.  A bit of warning, on a year over year basis headline CPI will likely rise at the fastest pace in over a year due to extraordinarily low energy prices realized in the fourth quarter of 2008, this pattern will likely continue over the next few months and then normalize as past energy prices play catch-up.  Core CPI should remain relatively subdued during the month.  The current Bloomberg consensus forecast is for a monthly rise in headline CPI of 0.1%, with Core CPI anticipated to rise at the same pace.

8:30 a.m. EST: January’s Empire State Manufacturing Survey (Risk: Negative, Market Reaction: Significant): This release will be investors first window into the fed’s regional factory sector reports for 2010.  Over the prior two months this survey has lost significant ground falling to 2.6 in December from 34.6 in October—a reading over 0 signifies expansion.  In December the Richmond fed’s release fell below 0 for the first time in 7 months; ironically, Richmond was the first of the fed’s districts to indicate a marginal recovery.  Nevertheless, I do not anticipate the NY fed’s survey will follow suit.  The current Bloomberg consensus forecast is for a survey result of 13.0, compared to 2.6 in December.  The new orders component remained positive in December, but barely, so I recommend keeping a close eye on December’s number.  Additionally, don’t forget to watch the prices paid and employment components of the release.

8:30 a.m. EST: December’s Industrial Production (Risk: Neutral, Market Reaction: Significant): Extremely cold weather across the country should help boost utility output during the month, which should help bolster December’s industrial output.  Growth in the manufacturing component should be relatively restrained during the month as aggregate hours worked in manufacturing fell -0.4% during December.  The current Bloomberg consensus forecast is for an increment in industrial production of 0.6%, compared to 0.8% a month prior.  The same forecast anticipates capacity utilization to rise to 71.9% from 71.3% in November.

9:55 a.m. EST: Preliminary January Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): I expect this index will be up marginally from its final reading of 72.5, on the back of early indications of improvements in the labor market, and incentives around the holiday season.  But, these positive factors will be playing a tug-of-war against negative factors including energy prices and what, despite improvements, is a weak labor market.  The current Bloomberg consensus forecast is for a reading of 74.0.

12:30 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak about the economic outlook to the Richmond Risk Management Association.

2:30 p.m. EST: Janet Yellen, the San Francisco Federal Reserve Bank President, will give a speech on “Economic Environment for Innovation” at the Innovation and Equity Conference in San Francisco, CA

Enjoy the weekend!

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US Economics Week Ahead: Retailers not Dreaming of a White Christmas

December 19th, 2009 Michael McDonough Comments off

Retailers are not dreaming of a white Christmas.  Whether a snowstorm impacting the Mid-Atlantic region this weekend will impact an arguably lackluster holiday shopping season is yet to be seen.  But, bad weather does have a tendency of keeping would be shoppers home, however, these shoppers will still have access to online stores, but given the proximity to the holiday, would likely be forced to dish out expedited shipping charges.  Despite the shortened week the market will be receiving several early Christmas presents including November’s new and existing home sales data, durable goods orders, personal income and outlays, and finally December’s final consumer sentiment reading.  Given the holiday many market participants will likely be away from their desks, which could cause higher than usually volatility on the back of light buying.  Investors will also be paying close attention to Thursday’s jobless claims data after disappointing data last week.

On the earnings front we will be hearing from Micron (MU), Red Hat (RHT), Walgreen (WAG), and Conagra (CAG).  Investors will also want to look for headlines from Iraq where it has been reported that Iran took over an oil well in the south of the country.  If the situation escalates, geopolitical instability in the Middle East not only has the potential cause a spike in oil prices, but could draw investors away from risk.  On oil, OPEC is scheduled to meet next week, and will likely keep production unchanged.  Enjoy the holidays.

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

Monday, Dec. 21

8:30 a.m. EST: November’s Chicago Fed National Activity Index (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 been trending upwards over the preceding nine months, and should show some improvement in November from its reading of -1.08 in October.

Tuesday, Dec. 22

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 rose +0.4% compared to a drop of -1.3% a week prior.

8:30 a.m. EST: Third Quarter 2009 GDP (Risk: Neutral, Market Reaction: Moderate): I anticipate that very little will change from the BEA’s preliminary estimate of third quarter 2009 GDP at 2.8%.  The preliminary estimate was down markedly from the BEA’s advanced estimate of 3.5%.  The current Bloomberg consensus forecast is for a reading of 2.8%.  This release should be a non-event barring any unforeseen revisions.

8:30 a.m. EST: Third Quarter Revised Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season.  However, since these profits tie into GDP growth, and do not always move lock step with individual corporations’ aggregate earnings data, the data can have an unexpected impact on growth.  The original 3Q09 corporate profits release indicated profits grew at 10.6%.

8:55 a.m. EST: Redbook (Risk: Neutral, 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 rose 1.5% last week on a yearly basis.

10:00 a.m. EST: November’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Pending home sales rose 3.7% in October, which should bode well for November’s existing home sales.  Existing home sales jumped 10.1% in October, primarily due to buyers rushing contracts to take advantage of the first time home buyer tax credit prior to its original expiration in November.  The supply of existing homes continued to fall to 7.0 months from 8.0 months in September. The current Bloomberg consensus forecast is for a rate of existing home sales of 6.25 million in November versus 6.10 million in October.

10:00 a.m. EST: FHFA House Price Index (Risk: Neutral, Market Reaction: Moderate): 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 was unchanged in September, while August’s reading was revised down to -0.5% from -0.3%.  The monthly index tends to be relatively volatile, but should continue to trend up in-line with the Case-Shiller home price index.

Wednesday, Dec. 23

7:00 a.m. EST: MBA Mortgage 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.  Applications rose 0.3% last week after rising 8.5% a week prior.  Refinance applications rose modestly be 0.9%, while purchase applications fell -0.1%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

8:30 a.m. EST: November’s Personal Income and Outlays (Risk: Neutral, Market Reaction: Significant): Personal income should continue to extend it gains, growing for a fifth consecutive month, while spending should also rise on stronger motor vehicle sales during November.  More importantly, headline and core CPI should remain relatively tame, placing inflationary concerns on the back burner, at least for the time being.  The current Bloomberg consensus forecast is for an increase in income of 0.5% (0.2% in October), and an increase in spending of 0.6% (0.7% in October), while core PCE is anticipated to rise a modest 0.1% (0.2% in October) in November.

9:55 a.m. EST: December’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): December’s preliminary consumer sentiment index jump to 73.4 from a reading of 67.4 in November.  Improving market conditions and some better than anticipated labor data during the month should provide a modest bump in December’s final sentiment reading.  The current Bloomberg consensus forecast is for a reading of 73.5.

10:00 a.m. EST: November’s New Home Sales (Risk: Neutral, Market Reaction: Significant): As with existing home sales, new home sales likely rose in November.  The rate of new home sales in October was the highest rate since September 2008, and November’s release should be even higher.  The current Bloomberg consensus forecast is for the rate of new home sales to increase to 440K from 430K a month prior.

10:30 a.m. EST: 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 an unexpected decline of -3.7 million barrels versus a drop of -3.8 million barrels a week prior.

Thursday, Dec. 24

8:30 a.m. EST: November’s Durable Goods (Risk: Neutral, Market Reaction: Moderate): Durable goods orders should recover a portion of October’s -0.6% decline on the back of stronger motor vehicle sales during the month.  The current Bloomberg consensus forecast is for an increment in durable goods orders of 0.5%, versus a drop of -0.6% a month prior. Unfortunately, last month’s number excluding the volatile transportation component fell -1.3%.  Additionally, an unexpected jump in civilian aircraft orders last month (+50%) may have been overstated and I anticipate this could lead to a strong drop of this component in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 7K last week to 480K, after rising 17K a week prior. Despite the increment in last week’s claim data the four week moving average improved to 467,500 from 473,750.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 470K, a decrease of -10K from last week.

10:30 a.m. EST: 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.

4:30 p.m. EST: 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 jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS.    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, Dec. 25

All Markets Closed—Merry Christmas!

Enjoy the weekend!

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US Economics Week Ahead: Black or Red Friday?

December 5th, 2009 Michael McDonough Comments off

This week is relatively quiet on the economic front, following last week’s tsunami of data culminating in a much better than anticipated employment release.  This week’s theme is the consumers, who have the potential to stymie last week’s positive sentiment depending on sales strength during the Black Friday shopping weekend.  The week’s primary release will be retail sales on Friday; however, the Tuesday’s typically overlooked Redbook and ICSC-Goldman Store Sales releases could provide some important clues toward Friday’s critical sales report.  Early indications have been mixed, with discount stores seeming to be more robust relative to their department and specialty store counterparts—another indication of a more value oriented consumer.

After Friday’s employment report investors will be paying close attention to Thursday’s jobless claims data hoping for additional evidence that Friday’s much better than anticipated employment report was not a one-off event.  Personally, I still believe the employment situation will get worse before it gets better, but is unquestionably heading in the right direction.  Other important indicators this week include Thursday’s international trade data and Treasury budget; and Friday’s preliminary consumer sentiment index and business inventories report.

We should also hear earnings this week from Costco Wholesale Corp., H&R Block Inc., Kroger, and Smithfield Foods.  Additionally, during a speech on the economy on Tuesday President Obama could discuss new proposals for job creation derived from his recent jobs summit.

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

Monday, Dec. 7

12:00 p.m. EST: Ben Bernanke, the Federal Reserve Chairman, speaks to the Economics Club of Washington D.C.

3:00 p.m. EST: October’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): Total outstanding consumer credit will likely decline for the 8th consecutive month—a series record—after declining by -$14.8 billion in September.  The decline should come entirely from a decline in revolving credit—credit cards—while non-revolving credit should show a modest increment due to auto sales.  The current Bloomberg consensus forecast is for a total decline in credit of -$9.3 billion for October.  This data would be more significant if retail sales and personal sales data were not already known for the month.

5:45 p.m. EST: William Dudley, the NY Fed President, is attending Columbia University’s World Leaders Forum

Tuesday, Dec. 8

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 declined -0.1% compared to no change a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, 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 rose 3.8% last week on a year over year basis.

10:00 a.m. EST: IBD/TIPP Economic Optimism Index (Risk: Neutral, Market Reaction: Marginal): IBD’s economic optimism index is not closely watched by markets, but it could provide us with some direction for Friday’s preliminary consumer sentiment index.

Wednesday, Dec. 9

7:00 a.m. EST: MBA Mortgage 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.  Applications rose 2.1% last week after dropping 5.5% a week prior.  Refinance applications climbed 1.7%, while purchase applications rose 4.1% on the back of attractive interest rates.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:00 a.m. EST: Wholesale Trade (Risk: Neutral, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  It is generally considered a good forward looking indicator toward trends in consumer behavior as stores typically ramp up inventories prior to any anticipated increment in sales.  It is important to note that this data is on a two month lag.

10:30 a.m. EST: 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 an increment of 2.1 million barrels versus a jump of 1.0 million barrels a week prior.

Thursday, Dec. 10

8:30 a.m. EST: October’s International Trade Data (Risk: Neutral, Market Reaction: Moderate): The US trade deficit likely grew further in October on the back of an increment in imports, offset by a smaller increment in exports.  It is not unusual for the trade gap to widen during a recovery period.  However, the current Bloomberg consensus forecast is for a little changed trade deficit in October of $36.4 billion, compared to $36.5 billion in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 5K last week to 457K, after falling 35K a week prior. This is the lowest level reading since September 2008. But, a portion of this improvement could be attributable to strong seasonal adjustment factors due to annual deviations in the date of the Thanksgiving holiday, but there is no doubt the news is getting better.  Improving initial claims are indicative of fewer job losses in the monthly employment report; however, the job situation will get worse before it gets better.  The current Bloomberg consensus forecast is expecting claims to come in at 460K, an increase of 3K from last week.

9:00 a.m. EST: RBC Cash Index (Risk: Neutral, Market Reaction: Moderate): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:00 a.m. EST: Third Quarter Quarterly Services Survey (Risk: Neutral, Market Reaction: Marginal): The U.S. Consensus Bureau’s Quarterly Services Survey estimates total operating revenue with a breakdown in revenue by client type (i.e. government, business, consumers, and individuals).  The survey is specific to the following baskets of sectors: 1) Information, 2) Professional, Scientific, and Technical Services, 3) Administrative and Support and Waste Management and Remediation Services, 4) Hospitals and Nursing and Residential Care Facilities.  The 2Q09 survey showed revenues decreased for all sectors excluding hospital and nursing and residential care facilities.

10:30 a.m. EST: 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.

12:45 p.m. EST: Elizabeth Duke, a Federal Reserve Board Governor, will speak at the Chicago Fed’s mortgage foreclosure policy conference in Chicago.

2:00 p.m. EST: November’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The Treasury Budget in November will likely show another record deficit.  In October—the first month of the government’s fiscal year—the deficit reached -$176.4 billion compared to -$155.5 billion a year prior.  The current Bloomberg consensus forecast for November is a deficit of -$135.0 billion, to help put this into perspective the average deficit over the past 10 years in November is -$68.4 billion.

4:30 p.m. EST: 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 shrank last week to US$2.183trn from US$2.189trn.    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, Dec. 11

8:30 a.m. EST: November’s Retail Sales (Risk: Neutral, Market Reaction: Significant): Several factors should help bolster retail sales in November including higher auto sales, new video game releases—Modern Warfare 2—, and higher gasoline prices.  However, early indicators toward consumer sales during the popular Black Friday weekend have been mixed.  It would appear discount stores sales continue to outperform their department and specialty store counterparts.  Look toward Tuesday’s Redbook and ICSC-Goldman Store Sales for additional clues toward this release.  The current Bloomberg consensus forecast is for an increase in headline retail sales of 0.9% versus 1.4% a month prior, while retail sales ex-autos is expected to rise 0.5%, compared to 0.2% in October.  This would be te fourth consecutive month of growth for retail sales ex-autos.

8:30 a.m. EST: November’s Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): The rising cost of oil in November will undoubtedly place upward pressure on the import price index.  Lower natural gas prices during the month will help to offset some increments in other imported commodities including gold and copper, but the ex-petroleum price index should still remain positive. 

9:55 a.m. EST: Preliminary December Consumer Sentiment (Risk: Positive, Market Reaction: Moderate): December’s preliminary consumer sentiment should show at least a modest gain from November’s final reading of 67.4.  For hints toward the direction of this indicator look at Tuesday’s IBD/TIPP Economic Optimism Index and ABC News consumer comfort index released Tuesday evening.  The current Bloomberg consensus is for a reading of 68.2 compared to 67.4 in November.

10:00 a.m. EST: October’s Business Inventories (Risk: Positive, Market Reaction: Moderate): The current Bloomberg consensus forecast is for a decline in inventories of -0.2% compared to a drop of -0.4% a month prior.  Despite the consensus forecast, factory inventories, which rose +0.4% in October, realizing its first gain in 14 months, providing some upward momentum for the release.  Concurrently wholesale inventories are anticipated to fall -0.4%—released on Wednesday—, while retail trade is expected to decline by -0.1%

Enjoy the weekend!

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US Economics Week Ahead: Is There Time for Turkey?

November 21st, 2009 Michael McDonough Comments off

The market will be providing a cornucopia of data this week centered on Tuesday and Wednesday, which you can mull over as you begin brining your turkeys—as an aside here’s the recipe I will be following this year.  Also, I wrote an interesting column on Friday for Real Money titled ‘Talking Turkey on Agricultural Trends’ that I recommend you read.

The market will digest 15 important data releases in just three days.  But here’s what you should be paying attention to; the week’s most critical data will likely come in the form of the FOMC minutes, home sales, personal income and outlays, and the first revision of third quarter GDP, which likely won’t look as rosy as the advanced estimate.  On the housing front we will get the FHFA and Case Shiller Home Price Indices.  The MBA mortgage application index has also been garnering more attention as purchase applications continue to plummet to 12 year lows.  Looking toward the consumer, both the Conference Board’s and University of Michigan’s consumer sentiment indices are schedule for release.  Finally, I should mention that on Wednesday we will be getting October’s durable goods data.

Despite the shortened week we will be hearing earnings from the final Dow Jones Industrial component, HP.  In addition to HP, we can expect earnings from Medtronic, Barnes and Nobles, Borders, and John Deere.  This week the Treasury will be auctioning off a record $118 billion in two-, five- and seven-year Treasury instruments, which could place some pressure on bond markets.  However, so far demand for bonds, despite record issuances has remained in place, partially on the back of higher foreign demand.

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

Monday, Nov. 23

8:30 a.m. EST: October’s Chicago Fed National Activity Index (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 eight months but is expected to decline slightly in October from its reading of -0.81 in September.

10:00 a.m. EST: October’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Existing home sales could gain some upward momentum in October following a sharp rise in September’s pending home sales index, which rose 6.1%–this index has been up for eight consecutive months.  The current Bloomberg consensus forecast is for existing home sales of 5.70 million 5.57 million a month prior.

Tuesday, Nov. 24

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 -0.1% in store sales compared to a decline of -0.1% a week prior.

8:30 a.m. EST: First Revision of 3Q09 GDP (Risk: Neutral, Market Reaction: Significant): It is likely that the BEA’s advanced 3Q09 GDP estimate of 3.5% will be revised down significantly due to a higher than anticipated trade deficit, lower non-residential investment, slower than expected inventory rebuilding, and a small markdown due to worse than anticipated personal consumption data.   The current Bloomberg consensus forecast is for the 3Q09 first revision GDP growth to come in at 2.8%.  This revision, especially if below the market consensus, could cause some market participants to start questioning the overall strength of the US economic recovery, however, the 4Q09 growth pace is still on pace to finish around 3.5%.  Looking ahead, stronger than anticipated inventory liquidations during the quarter will likely be made up during 4Q09 and the first part of 2010 helping buoy growth.  Looking further into 2010, growth should remain stable, but below trend.

8:30 a.m. EST: Third Quarter 2009 Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season.  However, since these profits tie into GDP growth they do not always move lock step with individual corporations’ aggregate earnings data.  In 2Q09 corporate profits reportedly grew around 5.7%.

8:55 a.m. EST: 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 rose 2.0% last week on a year over year basis.

9:00 a.m. EST: September’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI has demonstrated four consecutive months of gains, during which it gained 5%.  However, on a yearly basis both the 10 and 20 city indices are still down roughly 11%.  Nevertheless, according to August’s data 19 of 20 cities reported improvements on their year over year declines.  We can expect to see some continued improvement in September.

10:00 a.m. EST: November’s Consumer Confidence (Risk: Neutral, Market Reaction: Marginal): The Conference Board’s measure of consumer confidence should remain relatively steady after plunging to 47.7 from 53.4 in October.  Last month’s sharp decline was mostly due to concerns over the labor market.  The Bloomberg consensus forecast for November’s release is a marginal decline to 47.0, but I should mention that individual forecasts range from a low of 44.0 to a high of 47.0

10:00 a.m. EST: Third Quarter 2009 and September’s Monthly FHFA Home Price Index (Risk: Neutral, Market Reaction: Marginal): The Federal Housing Finance Agency (FHFA) monthly/quarterly 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. According to the FHFA’s second quarter report housing prices fell 0.7%on a quarter over a quarter basis, or 6.1% on a yearly basis.  The FHFA’s monthly price index fell for the first time since April in August by -0.3%, but should turn positive again in September. 

10:00 a.m. EST: November’s Richmond Fed Manufacturing Index (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, but showed some signs of weakness in October falling from 14 to 7.   The new orders index, which tends to be a forward looking component, has fallen for three straight months this could potentially place some additional downward pressure on the headline index.  Aggregate changes in the Fed district’s manufacturing surveys could be a good indicator not only for the country’s economic health, but also ISM performance.

10:00 a.m. EST: 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, “[Last] month’s, institutional investors have paused to take stock,” commented Froot. “The Global Index reading of 108.4 remains comfortably above the neutral level of 100 for a seventh consecutive month, but underlying flows have been tempered somewhat from the very strong levels of July and August. While the US earnings season has been relatively robust so far, the number of positive surprises that have been observed in employment, retail sales, manufacturing and trade figures has diminished considerably, and this may be influencing investor risk appetite.”

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal): Despite only modest changes in the FOMC’s statement, analysts will likely be looking very closely at the motivation behind these nuances.  In any case, it is unlikely these minutes will provide any groundbreaking new information for market participants.

Wednesday, Nov. 25

7:00 a.m. EST: MBA Mortgage 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.  Applications fell 2.5% last week after gaining 3.2% a week prior.  Unlike the week prior which saw a precipitous drop in purchase applications while refinance applications remained positive; last week’s data was negative all around, despite lower interest rates.  Refinance applications dropped 1.4%, while purchase applications fell and additional which 4.7%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, thereby reducing the current demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months–don’t forget buying a house can be a long drawn out process.   Nevertheless, increased lending standards for FHA loans, due to the organizations worsening finances, could place some headwinds on the purchase index’s recovery.

8:30 a.m. EST: October’s Durable Goods Orders (Risk: Neutral, Market Reaction: Significant): Durable goods should experience a modest increase in October after gaining 1.4% in September on the back of relatively strong machinery and transportation equipment orders.  Weakness in October for civilian aircraft orders should place some pressure on index, with the current Bloomberg consensus forecast expecting a rise of only 0.5%.  It will also be important to keep an eye on the less volatile ex-transport index.

8:30 a.m. EST: October’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): An increment in auto purchases—after dropping sharply upon the expiration of the ‘Cash for Clunkers’ program–should help bolster consumer spending, which fell -0.5% in September.  This release will be important because it will be the first look into the consumer’s fourth quarter spending habits leading into the holiday season.  Personal income is expected to show a modest gain for the month, but still remain down around -2% on a year over year basis.  The current Bloomberg consensus forecast is for an increment in spending of 0.5%, and an increase in income of 0.2%.  At the same time, analysts are anticipating a modest jump in Core PCE of 0.2% after rising 0.1% in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims remain unchanged last week at 505K, after falling 12K a week prior. I should note there is again the potential for initial jobless claims slip below the psychological barrier of 500K this week, which could have the potential of at least temporarily influence trading.  Nevertheless, despite second derivative improvements these levels still indicate continued losses for monthly payrolls—albeit at a slower pace—coupled further deterioration to the unemployment rate, which has already exceeded 10%. The current Bloomberg consensus forecast is expecting claims to come in at 504K, essentially unchanged from last week.

9:55 a.m. EST: November’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): After a disappointing preliminary November release of 66.0, consumer sentiment will likely finish the month up only marginally to what the Bloomberg consensus forecast anticipates will be a level of 67.0.  Like the Conference Board’s measure a weakening job market—albeit at a slower pace—continues to weigh on consumer attitudes.  Also interesting to note is the fact that in every month since June final number has finished higher than the preliminary release.

10:00 a.m. EST: October’s New Home Sales (Risk: Neutral, Market Reaction: Significant): Like existing home sales, new home sales should continue to climb in October, but at a more modest pace.  The primary reason behind this is likely the fact that existing home sales can be bought at a more attractive price compared to their new home counterparts.  The current Bloomberg consensus forecast is for the rate of new home sales to increase to 410K from 402K a month prior.

10:30 a.m. EST: 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 -0.9 million barrels versus a gain of 1.8 million barrels a week prior.

12:00 p.m. EST: 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.

Thursday, Nov. 26

Thanksgiving Markets Closed

Friday, Nov. 27

Black Friday

4:30 p.m. EST: 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 ballooned last week to US$2.192trn from US$2.117trn a week prior on the back of higher agency and mortgage-backed securities holdings.    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.

Enjoy the weekend!

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Wavering Sentiment Likely to Raise Fears Among Retailers

November 13th, 2009 Michael McDonough Comments off

The preliminary November University of Michigan Consumer Sentiment Index was reported at 66.0 versus a 70.6 reading in October, and 73.5 in September–well below expectations.  As I warned in my economist first look, this index could face some downside risk as survey participants would have been exposed to a worse than anticipated employment report last Friday in addition to what have been volatile equity markets and rising oil prices.  Wavering confidence will be a big concern going into the holiday shopping season as consumers cash strapped consumers remain hesitant to undertake large expenditures.

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US Economics Week Ahead: A Quiet Week; A Busy Friday

November 7th, 2009 Michael McDonough Comments off

The second full week in November brings with it not only a federal holiday on Wednesday, but a relatively quiet week on the data front. The week’s potentially most interesting piece of data—the Fed’s Senior Loan Officer Survey—has no official release date, however, looking back the report is typically published early in the week following the FOMC meeting.  Investors will be turning to the report for indications toward improvements in the credit and commercial real estate market.  After last week’s FOMC meeting Federal Reserve officials will be returning to the speakers’ circuit this week with three important speeches coming on Tuesday.

Other important indicators during the week include September’s international trade data, October’s import and export prices indices, and November’s preliminary consumer sentiment index, all occurring on Friday.   Additionally, close attention will be place on Thursday’s jobless claims release, following Friday’s worse than anticipated employment report.  As I mentioned on Thursday, as the third quarter earnings season winds down the primary catalyst for U.S. equity markets over the remainder of the year will likely be a tepid recovery in the U.S. labor market, placing added emphasis on any jobs related data.

The week could also bring with it passage by the House of their version of U.S. healthcare reform, which could drive some headlines.  Also on the political front, President Obama will make his first trip to Asia where his visit to China may grab some attention, especially after passing a recent tariff on Chinese tires.  Finally, Kraft has a deadline of 17:00 GMT Monday to make an official offer for Cadbury, or else be forced to walk away for at least six months.  On the earnings front, Wal-Mart is expected to announce third quarter earnings on Thursday.

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

Monday, Nov. 9

6:15 p.m. EST: Daniel Tarullo, Federal Reserve Governor, will be speaking at a Money Marketeers event in NYC.

Tuesday, Nov. 10

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, 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 0.1% in store sales compared to a gain of 0.1% a week prior.

8:30 a.m. EST: November USDA Crop Report (Risk: Neutral, Market Reaction: Moderate): This report could garner added attention as frost and heavy rains have delayed harvests three to five weeks, and may have adversely impacted total crop production and yields, therefore impact prices.

8:55 a.m. EST: 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 rose 0.9% last week on a year over year basis.

9:15 a.m. EST: Dennis Lockhart, Atlanta Federal Reserve Bank President, is giving a speech on the economy at the Urban Land Institute conference in Atlanta

10:00 a.m. EST: Janet Yellen, San Francisco Federal Reserve Bank President, is giving a speech on the economic outlook and real estate.

7:30 p.m. EST: Richard Fisher, Dallas Federal Reserve Bank President, is giving a speech on the economic outlook.

Wednesday, Nov. 11

Veteran’s Day (Federal Holiday—Fixed Income Markets are closed)

7:00 a.m. EST: MBA Mortgage 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.  Applications rose last week 8.2% after falling 12.3% a week prior.  The increment was due to more attractive interest rates.  The refinance index rose 14.5%, while the purchase index fell 1.8%. Refinances made up 66.1% of all applications last week.

Thursday, Nov. 12

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 20K to 512K, after falling 1K a week prior. Despite second derivative improvements these numbers still indicate continued losses for monthly payrolls, and the unemployment rate, which is has already exceeded 10%. The current Bloomberg consensus forecast is expecting claims to remain flat this week after last week’s sharp drop.

9:00 a.m. EST: RBC CASH Index (Risk: Neutral, Market Reaction: Significant): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released next week.

10:30 a.m. EST: 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.

2:00 p.m. EST: Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus forecast for September’s US government budget deficit is –$150 billion compared to –$46.6 billion 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; the government’s budget full year deficit totaled -$1.42 trillion compared to -$454.8 billion a year ago.

4:30 p.m. EST: 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 expanded slightly last week to US$2.147trn from US$2.144trn 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, Nov. 13

8:30 a.m. EST: September’s International Trade Data (Risk: Neutral, Market Reaction: Moderate): An anticipated increase in exports will likely be offset by higher energy prices, which should cause the trade deficit to enlarge for the fifth consecutive month.  The current Bloomberg consensus forecast is for a deficit of $32.5 billion compared to $30.7 billion in August.

8:30 a.m. EST: October Import and Export Prices (Risk: Neutral, Market Reaction: Moderate): A weakening dollar coupled with rising energy prices should lead to a large increment in US import prices.  The current Bloomberg consensus forecast is for an increase in import prices of 1.1%.

9:55 a.m. EST: Preliminary November Consumer Sentiment (Risk: Downside, Market Reaction: Significant): A worse than anticipated employment report coupled with rising energy prices and a volatile equity markets could place some pressure on November’s preliminary consumer sentiment release.  Nevertheless, the current Bloomberg consensus survey is for a reading of 71.0, compared a final release of 70.6 in October.

10:30 a.m. EST: 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 -4.0 million barrels versus an increment of 0.8 million barrels a week prior.

9:15 a.m. EST: Charles Evans, Chicago Federal Reserve Bank President, is participating in a panel discussion with Bank of France Governor Christian Noyer on “Should Monetary Policy Prevent Bubbles?”

Enjoy the weekend!

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This Morning’s Macro Recap: Income & Consumption, ECI, Chicago PMI, & Consumer Sentiment

October 30th, 2009 Michael McDonough Comments off

Personal Income showed no change for September after a revised increment +0.1% in August, this was inline with the consensus forecast.  Personal Consumption Expenditures (PCE) declined -0.5% in September, versus a revised increment of +1.4% in August.  The decline in consumption is the continued aftereffects caused by the expiration of the US government’s ‘Cash for Clunkers’ program’.  The program significantly bolstered sales during the months it was active, by at least partially,  leading some consumers–who would have been purchasing over the current months–to buy earlier in order to take advantage of the discount.  Additionally, relatively benign income growth over the past several months is unlikely to help catalyze any significant jump in consumer spending.   This data is indicative that the strong bounce in 3Q09’s personal consumption component of GDP will likely not be repeated in 4Q09.  The good news is that the inflation component of the report remains at relatively subdued levels.

October’s Chicago Purchasing Managers Index rose to 54.2 from 46.1 in September easily beating expectations.  The new orders index jumped to 61.4 in October from 46.3 in September, while the production index climbed to 63.9 in from 47.2. The employment index reported a modest decline to 38.3 October from 38.8 a month prior, while the prices paid component fell to 48.6 from 51.3.  A large jump in October’s new order index should bode well for the headline number next month.

October’s final University of Michigan Consumer Sentiment Index rose to 70.6 compared to a preliminary reading in October of 69.4; September’s final reading was 73.5.  This was essentially inline with expectations, but the fact that the final release declined from last month highlights the fact that consumers remain nervous, which will likely adversely impact the holiday shopping season.

In other news, the employment cost index rose 0.4% in 3Q09, which continues to indicate that wage pressure remains relatively benign.  This will not go unnoticed by the FOMC, who will likely keep their policy stance unchanged through most of 2010.

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US Economics Week Ahead: The End is Near! (for the recession…)

October 24th, 2009 Michael McDonough Comments off

This week’s most important economic data will likely come in the form of third quarter 2009’s advanced estimate of GDP, which should put an end to four consecutive quarters of declines.  The U.S. government’s ‘Cash for Clunkers’ program during the quarter should help to boost the personal consumption component of GDP, while inventories declining at a slower pace should provide a boost for that component.  Inventories do not need to turn positive to add to GDP they just need to fall at a slower pace.  Inventories are the difference between production and sales.  To highlight this point here is an excerpt from a recent Bank of America research report, “If my factory sells 10 wiggits per month, but is producing only 6 per month, then inventories fall by 4 per month. If sales stay at 10 and I want to slow the inventory depletion to 2 per month I need to raise production to 8.”

Also of note this week is September’s personal income and outlay data on Friday, which should show only a modest increase in income, while consumption should be down more significantly on the back of reduced auto sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program a month earlier.  Other indicators of note include Tuesday’s S&P Case Shiller HPI and consumer confidence, Wednesday’s durable goods orders and new home sales data, Thursday’s jobless claims release, and finally the Chicago PMI on Friday.

The coming week also brings the market its fair share of earnings releases with more than 25% of the S&P500 and four Dow components reporting.    Some major companies include Exxon Mobile, Chevron, Procter & Gamble, Visa, General Dynamics, Met Life, and Verizon to name a few. Fed speak is relatively light this week ahead of the November 3rd through 4th FOMC meeting.

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

Monday, Oct. 26

8:30 a.m. EDT:  September’s Chicago Fed National Activity Index (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 seven months and is expected to improve again in September from its reading of -0.9 in August.

10:30 a.m. EDT:  October’s Dallas Fed’s 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 “factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal.”

Tuesday, Oct. 27

7:45 a.m. EDT: ICSC-Goldman Store Sales (Risk: Neutral, 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 0.2% in store sales compared to a gain of 0.6% a week prior.

8:55 a.m. EDT: 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 rose 0.5% last week on a year over year basis.

9:00 a.m. EDT: August’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI has demonstrated three consecutive months of gains, but could face some pressure in August after a disappointing FHFA HPI release for the month.  Only three components (Detroit, Las Vegas & Seattle) of the 20 city index demonstrated monthly declines in July.

10:00 a.m. EDT: October’s Consumer Confidence (Risk: Downside, Market Reaction: Significant): Higher energy prices and continued uncertainty over the economic outlook could place some continued pressure on the Conference Board’s measure of consumer confidence.  The current Bloomberg consensus forecast is for a reading of 54.0, compared to 53.1 in September.

10:00 a.m. EDT: 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, “After eight consecutive increases in Global Investor Confidence, which took the Index from an all-time low of 82.1 during the financial crisis to a five-year high of 122.8, institutional investors took a breather this month and consolidated their holdings of risky assets,” commented Froot. “This month’s reading of 118.1 is still comfortably in the range associated with the accumulation of risk exposures, as a reading of 100 signifies neither accumulation nor decumulation. However, there is a recognition that a portion of the recent rise in global equity prices can be attributed to liquidity expansion rather than fundamental opportunities. Institutional investors are pausing to assess this balance.”

10:00 a.m. EDT:  Richmond Fed’s 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.   According to the survey in August, manufacturing activity rose signaling a solid third quarter, while the new orders and employment components both experienced growth, and the price index slipped.

Wednesday, Oct. 28

7:00 a.m. EDT: 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 declined 13.7% after falling 1.8% a week prior due to climbing interest rates.  The refinance index fell 16.8%, while the purchase index fell 7.6%. Refinances made up 65.0% of all applications last week.

8:30 a.m. EDT: September’s Durable Goods Orders (Risk: Downside, Market Reaction: Significant): A drop in aircraft orders from Boeing could place some negative pressure on the index, while an increment in auto orders for the month could help to offset some of the decline.    The current Bloomberg consensus forecast is for an increase of 1.5%, after rallying 2.6% in August.  It will be important to monitor ex-transport orders, which tend to be less volatile, and were flat in August.

10:00 a.m. EDT: September’s New Home Sales (Risk: Neutral, Market Reaction: Significant): a 0.5% increment in housing starts for September  likely doesn’t bode well for the month’s new home sales data.  Nevertheless, the index should continue to rise, albeit at a slower pace.  The current Bloomberg consensus forecast is for an increase to a seasonally adjusted annual rate of 440K, compared to 429K in August.  Rising interests rates and the expected expiration of the first time home buyer tax credit may place some downward pressure on housing’s recovery.

10:30 a.m. EDT: 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 1.3 million barrels versus an increment of 0.4 million barrels a week prior.

Thursday, Oct. 29

8:30 a.m. EDT: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 11K to 531K, after falling 10K a week prior. 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 forecast is expecting a pullback in this week’s initial claims data to 525K from 531K.

8:30 a.m. EDT: 3Q09 Advanced Estimate of GDP (Risk: Upside, Market Reaction: Significant): Easy monetary and fiscal policies coupled with a turn in the inventory cycle should bring GDP growth into positive territory for the first time five quarters.  The current Bloomberg consensus forecast is for GDP growth of 3.0%.  The big test will be whether or not increments in final demand will be large enough to offset the eventual diminishing effects of fiscal and monetary policy over the coming quarters.

10:30 a.m. EDT: 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.

10:00 a.m. EDT:  October’s Kansas City Fed’s Survey of Manufacturers (Risk: Neutral, Market Reaction: Marginal): According to the most recent survey, “Tenth District manufacturing activity rebounded in September as firms’ orders picked up slightly, and expectations mostly held steady with last month’s positive outlook. Most price indexes in the survey inched higher, but still remained at fairly low levels.”  I anticipate this trend will continue to August.

4:30 p.m. EDT: 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$2.183trn from US$2.174trn a week prior.  The main catalyst behind the rise was an increase in the holdings of Treasury and mortgage bonds.  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, Oct.30

8:30 a.m. EDT: September’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): Personal income likely experienced a modest gain during the month with the current Bloomberg consensus forecast indicating a gain of 0.0%. However, personal consumption during the month likely took a much larger hit primarily due to a reduction in car sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program.  The current Bloomberg consensus forecast is for a decline of -0.5% for personal consumption.

8:30 a.m. EDT: Employment Cost Index (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg consensus forecast for the ECI is a quarter over quarter change of 0.5%, compared to a second quarter increment of 0.4%. This index should continue to confirm that over the near-term the risk of deflation continues to outweigh that of inflation. Weakness in the labor market combined with cost cutting, affecting benefits, should continue to place pressure on this index.  This index includes wages, salaries, and benefits.

*9:45 a.m. EDT: October’s Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the national ISM index. *It is also important to note that the Chicago PMI is released several minutes early to subscribers of the service, so you could see reaction to the release starting at 9:42AM.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could have an impact on trading.  The current Bloomberg consensus forecast is for a reading of 48.5, versus to 46.1 in September.  This index could face some negative pressure in October as its new orders index fell below 50 in September.  This index covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EDT: October’s Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): After a preliminary reading of 69.4 earlier this month—versus a final reading of 73.5 for September—, the Bloomberg consensus survey is anticipating a final reading of 70.0.  Looking back since June the preliminary number has been consistently revised up by the end of the month.

3:00 p.m. EDT: 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.

Enjoy the weekend!

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

October 10th, 2009 Michael McDonough Comments off

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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