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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: 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: Is October the new September?

October 3rd, 2009 Michael McDonough Comments off

Based on last week’s negative performance on the back of several pieces of melancholy economic news, some investors may argue September has come late this year.  Looking ahead, we have a pretty quiet week on the data front, which may cause investors, still trying to heal from last week’s wounds, to place added emphasis on second tier indicators.  This week’s most important releases will be non-manufacturing ISM on Monday, consumer credit on Wednesday, chain store sales and jobless claims on Thursday, and international trade on Friday.  Over the coming weeks investors will continue gauging the magnitude of the pullback on the overall economy stemming from the cessation of ‘Cash for Clunkers’, along with potential damages from the upcoming expiration of the first time home buyer tax credit.

This week also brings with it the start of 3Q09 earnings, with Alcoa, Pepsi, Costco, and Yum all scheduled to announce this week.  Also this week the Senate Finance Committee is expected to vote on the Baucus Bill for healthcare reform.

Over this weekend G7 finance ministers and central bankers are meeting, and will likely release a communiqué that has the potential to generate some headlines.  This will be followed up by IMF/World Bank meetings in Turkey on Tuesday and Wednesday.

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

Monday October 5th:

10:00AM: ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): The non-manufacturing ISM should continue its upward momentum, potentially moving above the 50 breakeven point with a Bloomberg consensus forecast of 50.0 compared to 48.4 in August.  But, August’s new orders index of 49.9 should decrease the odds of any large jump in the headline number.  This month it will be important to pay close attention to the forward looking new orders index and the prices paid components.  Additionally, given the lack of data this week and last week’s negative surprises more emphasis than usually may be placed on this release as the market continues to search for the light at the end of the tunnel.

Tuesday October 6th:

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 0.1% in store sales compared to a decline of -2.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -2.2% last week on a year over year basis.

9:45AM: Thomas Hoenig, Kansas City Federal Reserve Bank President, is giving a speech at an economic forum sponsored by the bank’s Denver branch.

Wednesday October 7th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed a decline of 2.8% despite lower mortgage rates.  The refinance index fell 0.8%, while the purchase index dropped 6.2%.Refinances made up 65.3% of all applications last week.

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

3:00PM: Consumer Credit (Risk: Neutral, Market Reaction: Moderate): August consumer credit should once again show a significant decline due to bank’s unwillingness to lend and apprehensive consumers’ hesitations toward borrowing.  The current Bloomberg consensus forecast is for a decline in credit of –US$8.5bn, versus –US$21.6bn in July.  This would be the 7th consecutive month of declines for the index.  The chances of a consumer led recovery seem even more remote when you take into account for the dwindling consumer credit market.

Thursday October 8th:

Chain Store Sales (Risk: Neutral, Market Reaction: Significant): Same store sales may have improved slightly in September from August.  We should continue to see discount chains outperforming luxury chains as consumers become increasingly budget conscious.  It is important to note that Wal-Mart is no longer included in this reelase. 

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 17K to 551K. Initial claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.  The current Bloomberg consensus for this week’s initial claims release is 540K. But, initial claims could face some upward pressure during the month as an increased number of lay-offs were announced to take place.

10:00AM: 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 next week.

10:00AM: Wholesale Trade (Risk: Neutral, Market Reaction: Moderate): 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.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

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

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet declined last week to US$2.123trn from US$2.141trn a week prior.  This was the first decline in eight weeks.  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.

8:45PM: Thomas Hoenig, Kansas City Federal Reserve Bank President, is giving a speech at an economic forum sponsored by the bank’s Oklahoma City branch.

Friday October 9th:

8:30AM: International Trade (Risk: Neutral, Market Reaction: Moderate): Higher energy import prices will likely lead to further deterioration of the US trade balance with the Bloomberg consensus forecast projecting a decline of –US$33.0bn for August, compared to –US$32.0bn a month prior.  It will be important to monitor the levels of US exports, as a weakening US$ could have helped increase international demand for US products.  Also, during this time of year imports would typically experience some increments due to retailers stocking up for the holiday season, however, given depressed consumer demand and a morose outlook for the holiday season this effect will likely remain subdued.

Enjoy the weekend!

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US Economics Week Ahead: A Deluge of Data

September 12th, 2009 Michael McDonough Comments off

After last week’s relatively light economic calendar, the market faces a deluge of data from nearly every facet of the economy. With that said this week’s most closely watched release will likely be Tuesday’s retail sales announcement, which is expected to show a +2.0% gain on the back of increased auto-sales and higher gas prices, but not on what would traditionally be back-to-school spending.  Other notable releases include Tuesday’s PPI & Empire State Manufacturing Survey, Wednesday’s CPI & Industrial Production data, and Thursday’s Housing Starts, Jobless Claims, and Philly Fed Survey releases.  The week concludes with a quadruple witching on Friday, which has the potential to bring unusual volatility and volumes to the market.

Over the next several months, the incremental improvements in the US housing market could begin to come under some pressure as the US government’s first time home buyer tax incentive program is set to expire on November 30th.   This deadline doesn’t leave new buyers much time to find and close on any new purchases, which should lead to a gradual unwinding of the program.  The first evidence of this could be seen in this month’s housing starts data, given the long lag between getting homes permitted and sold to buyers in time to qualify for the program.  This combined with the temporaneous effect of the government’s now expired ‘Cash for Clunkers’ could help catalyze a retrenchment, or at least place adverse pressure on the housing and manufacturing sectors amid a still weakening labor market.

Here is the rest of this week’s calendar:

Monday September 14th:

8:35AM: Fed Governor Elizabeth Duke speaks at an annual conference for CPA’s in Washington D.C. on “Regulatory Perspectives on the Changing Accounting Landscape”.

12:30AM: Atlanta Fed President Dennis Lacker speaks on “Choices in Financial Regulation” with Q&A at the Risk Management Association’s annual conference.

3:50PM: San Francisco Fed President Janet Yellen will discuss the US economic outlook to CFA analysts in San Francisco.

Tuesday September 15th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a rise of 0.6% in store sales compared to an decline of -0.5% a week prior.

8:30AM: Producer Price Index (Risk: Neutral, Market Reaction: Significant): Rising energy prices from July to August will place upward pressure on August’s headline PPI number, while the core-PPI should remain largely unchanged.  The current Bloomberg consensus forecast is for a rise of +0.8% in the PPI, and +0.1% for the core number.

8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): What is typically a jump in August retail sales driven by increased back-to-school purchases will likely not materialize.  However, the index should experience relatively robust gains through a combination of mostly higher auto sales, due to the government’s ‘Cash for Clunkers’ program, and to some degree the pricing effect of rising gasoline prices.  The current Bloomberg consensus forecast is for an increment in retail sales of +2.0%, while retails sales ex-autos are anticipated to come in at +0.4%.

8:30AM: Empire State Manufacturing Survey (Risk: Neutral, Market Reaction: Moderate): The NY State Manufacturing Index should remain in positive territory in September, after its first positive reading in over a year last month.  This theory is supported by last month’s large increase in the survey’s new order index, which rose to 13.4 from 5.9 a month prior.  It will be important to monitor August’s new order index, which should remain positive, but may face some downward pressure due to strong seasonal adjustment factors. The current Bloomberg consensus forecast is for a September reading of 14.0, versus an August reading 12.1.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -2.4% last week on a year over year basis.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg forecast is for a -0.9% decline in July’s business inventories.  If this release is indeed negative it will be the 12th consecutive month inventories have declined.  But, over the past several months, the inventory to sales ratio has been receding from its January 2009 high.

10:00AM: Chairman Ben Bernanke will deliver the same speech he gave at the Jackson Hole Symposium to the Brookings Institute, but Q&A is anticipated.

Wednesday September 16th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index resumed its upward trend, rising 17.0%.  The refinance index rose 22.5%, while the purchase index climbed 9.5%; these increments were primarily driven by falling mortgage rates and relatively low home prices.

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): As with the PPI, August’s CPI release could face some upward pressure due to increases in fuel prices over the month; the Bloomberg consensus forecast is presently anticipating a +0.4% increment in the headline number.  At the core level, consumer prices should remain relatively steady with the current Bloomberg consensus forecast calling for an increment of just +0.1%.  Other factors that could impact this month’s release include upward pressure from increasing auto and tobacco prices.

8:30AM: Current Account (Risk: Neutral, Market Reaction: Marginal):  The 2Q09 current account deficit will likely fall to its lowest levels in several years, on the back of declining energy import prices during the quarter.  During 1Q09 the deficit stood at -US$102.7bn.

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

9:15AM: Industrial Production (Risk: Downside, Market Reaction: Significant): The current Bloomberg consensus forecast is for August’s industrial production to show an increase of +0.7%, compared to July’s increment of +0.5%.  A large portion of August’s increment is anticipated to come from increased auto production, which in my opinion, however, could be more than offset by weakness in other areas of manufacturing due to a reduction in hours worked for employees in the sector during the month.  The Bloomberg consensus forecast anticipates that capacity utilization will move to 69.0% in August from 68.5% a month prior.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of -5.9mn barrels versus a decline of -0.4mn barrels a week prior.

1:00PM: Housing Market Index (Risk: Neutral, Market Reaction: Marginal): The NAHB/Wells Fargo Housing Market Index is expected to show a modest gain on the back of tax credits, attractive mortgage rates, and low home prices.  The current Bloomberg consensus forecast is for a reading of 19 in September, compared to the previous month’s result of 18.  This index measures builders’ views over the conditions of the housing market; any reading below 50 implies their view is negative.  The index remains depressed primarily due to, improving, but still enormous inventory levels.

Thursday September 17th:

8:30AM: Housing Starts (Risk: Downside, Market Reaction: Moderate): Increased single-family starts will likely place upward momentum on the overall index with the Bloomberg consensus forecast presently anticipating a rise to 0.600mn units in August from 0.581mn units a month prior.  But, going forward there are some downside risks to this data due to the expiration of the government’s first time home buyer tax rebate in November.  What this means is that according to the NAHB, “July was probably the last month in which to get homes permitted and started in time for customers to take advantage of the incentive.”

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 20K to 550K. Claims should demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 575K.  This week’s projected increment is partially due to the positioning of this year’s Labor Day Holiday.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

10:00AM: Philadelphia Fed Survey (Risk: Neutral, Market Reaction: Moderate): The Philly Fed Index should continue last month gains with the current Bloomberg consensus survey indicating a reading of 8.0 for September compared to 4.2 in August.  This anticipated increment is on the back of the new order index’s strong performance in August moving to +4.2 from -2.2.  Given recent momentum the new orders index should also experience an additional rise this month.

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

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet rose again to US$2.072trn from US$2.069trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday September 18th:

Quadruple Witching: Contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire today.  As a result, we could see an increased amount of volumes and volatility in the market, especially toward the end of the day.

Enjoy the weekend!

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US Week Ahead: The Start of September…

August 29th, 2009 Michael McDonough Comments off

This week brings the onset of a notoriously bad month for returns, and given the week’s vast array of critical data, the ball is sure to start rolling in one direction or another.  First let me apologize if this week’s calendar seems somewhat abridged, as I am on vacation, and am writing it amid the sounds of seagulls and breaking waves.  This week’s key releases are the ISM manufacturing report, which has the chance to move above the breakeven point of 50 for the first time in roughly 20 months, and August’s employment report, which is likely to show continued deterioration.  Other notable reports include motor vehicle sales  on Tuesday, which will help us better comprehend the full magnitude of the government’s ‘Cash for Clunkers’ program, the ISM non-manufacturing report, and the release of the FOMC minutes, which will help investor’s gain a finer understanding of the Fed’s bias.  It is a busy week, so I recommend paying close attention.

Monday August 31st:

9:45AM: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index.  In July most of the index’ components experienced gains, supporting a recovery in the US.  The current Bloomberg consensus forecast for August’s release is 48.0, compared to a previous reading of 43.4.  It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices, all of which are currently below the breakeven of 50.  Last month the PMI stated, “If this were an average recession, it would end four months after the low point in the Barometer, suggesting an end of the recession in August 2009. A more conservative rule would draw an analogy to the 1981-82 recession, since this is not working out to be an average recession. Using that rule, the end of this recession would be projected to be 9 months after the lowest value of the Chicago Business Barometer. With March as our best current estimate of that minimum, the recession is projected to end in December 2009.”

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

Tuesday September 1st:

Motor Vehicle Sales (Risk: Upside, Market Reaction: Moderate): Motor vehicle sales will likely be up significantly on the back of the government’s ‘Cash for Clunker’ program.  The current Bloomberg consensus forecast is for sales is10.5mn, compared to the previous month’s sales of 8.3mn.

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a rise of 0.6% in store sales compared to a decline of -0.9% a week prior.

10:00AM: ISM Manufacturing Index (Risk: Upside, Market Reaction: Significant): The ISM has experienced seven straight months of gains, and given this trend and improvement in other manufacturing indicators has the potential to move above the breakeven point of 50 this month.  This belief is strengthened by strong performance of the ISM’s new order index last month, which came in at 55.3. The current Bloombeg consensus forecast is for a reading of 50.5, compared to July’s reading of 48.9.

10:00AM: Construction Spending (Risk: Neutral, Market Reaction: Moderate): Increased activity in the residential and government sectors will likely be offset by diminishing spending on the commercial structures, leading the no significant changes in construction spending.  The current Bloomberg consensus is for a 0.0% change from last month, compared to an increment of 0.3% a month prior.

10:00AM: Pending Home Sales (Risk: Upside, Market Reaction: Moderate): Large increments in new mortgage applications and general improvements in the housing sector will likely sustain upward momentum in pending home sales.  Pending home sales were up 3.6% a month prior.  Pending home sales tends to be a reasonable forward looking indicator to final home sales, however, not all pending sales become final.

Wednesday September 2nd:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index increased for the fourth consecutive week with a gain of 7.5%; while the refinance index rose 12.7% and the purchase index rose 1.0% on the back of relatively low mortgage rates and declining home prices.

7:30AM: Challenger Job Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs.  But, this data does not take into account the timing of the actual layoffs.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Significant): The ADP Employment report is considered a reasonable window into Friday’s critical payroll number.  Last month, however, the ADP reported indicated job losses of -371K, while payrolls declined by only -247K.

8:30AM: Productivity & Costs (Risk: Neutral, Market Reaction: Marginal): This will be the final release of 2Q productivity and labor costs.  It is unlikely there will be significant changes from the preliminary numbers, which showed a significant 6.4% increase in productivity and a -5.8% decline for unit labor costs.  In fact the current Bloomberg consensus forecast calls for no changes in either indicator.

10:00AM: Factory Orders (Risk: Upside, Market Reaction: Marginal): Increased durable goods orders largely on the back of the US government’s ‘Cash for Clunkers’ program will likely supply positive momentum for factory orders.  The current Bloomberg consensus forecast is for an increment of 2.3%, compared to 0.4% a month prior.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase in inventories of 0.2mn barrels after declining -8.4mn a week prior.

2:00PM: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal): Given the three week lag between the FOMC meeting and the release of the minutes this should have only a marginal effect on trading. But, the minutes could elaborate the rationale behind the FOMC’s decision, and give some clues to future decisions, in which case the market could move on the release.

Thursday September 3rd:

Chain Store Sales (Risk: Downside, Market Reaction: Moderate): Chain store sales probably came under pressure again last month, as consumers reduced spending on the back of weakness in the labor market.  In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.  This along with other negative factors should adversely impact this summer’s retail sales.

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

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 10K to 570K. Claims should marginally improve over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 562K.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

10:00AM: ISM Non-Manufacturing Index (Risk: Upside, Market Reaction: Moderate): August’s non-manufacturing ISM should show continued improvement, but remain below the breakeven mark of 50.  In July the new orders component came in below 50 at 48.1, and is not expected to break above 50 this month either.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet rose to US$2.049trn from US$2.037trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Friday September 4th:

8:30AM: Employment Report (Risk: Downside, Market Reaction: Very Significant): Elevated levels of initial jobless claims will likely place continued pressure on payrolls.  The current Bloomberg consensus forecast is for a decline in payrolls of -200K, and an unemployment rate of 9.6%.  I believe the consensus forecast for payrolls may be somewhat optimistic, and will be looking for additional hits in this week’s ADP and ISM employment indices.

Enjoy the weekend!

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US Week Ahead: To Buy Or Not To Buy

August 22nd, 2009 Michael McDonough Comments off

This week looks to be another whirlwind week of significant economic releases coming from the consumer and housing sectors, along with an update on 2Q09 GDP growth.  In addition to this, Monday will see the end of the US government’s highly successful ‘Cash for Clunkers’ program, which over the course of its existence has positively impacted numerous economic indicators.  These week’s data could help support the recent rally, or build a stronger case for the bears.  Housing related data starts on Tuesday with the release of the Case-Shiller home price index, followed an hour later by the FHFA home price index.  This week’s housing announcements conclude on Wednesday with the release of new home sales, which has the potential to beat analysts’ forecasts. Turning to the consumer, the Conference Board’s Consumer Confidence Index will be released on Tuesday, and is expected to show marginal gains.  This report will be followed up on Friday by the final release of the Reuters/University of Michigan consumer sentiment report, which should experience a marginal upward revision. This week’s other notable releases include durable goods orders on Wednesday, the preliminary estimate of 2Q09 GDP on Thursday, and Personal Income and Outlays on Friday.  Here’s the rest of the calendar:

Monday August 24th:

8:30AM: Chicago Fed National Activity Index (CFNAI-MA3) (Risk: Downward, Market Reaction: Marginal): The CFNAI is an index that consists 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 five months, and is expected to improve again in July from its reading of -2.1 in June.

Tuesday August 25th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a decline of -0.9% in store sales compared to no change the previous week.

9:00AM: S&P Case-Shiller House Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI is reported monthly, but on a two month lag. May’s report showed a slight increment in 7 of the 10 metropolitan areas covered by the report on a monthly basis, with Los Angeles, Miami, and Las Vegas still showing declines, albeit at a lower rate. I anticipate July’s release will reaffirm that trend, with a continued slowdown in the rate of decline for home prices on a yearly basis . But, we would still need to see significant improvements in those regions, which were the hardest hit by the drop in prices that include Las Vegas, Miami, and San Francisco before we can see a strong overall recovery.

10:00AM: Consumer Confidence (Risk: Neutral, Market Reaction: Significant): The Conference Board’s Consumer Confidence Index could improve marginally in August after July’s reading of 46.6. The current Bloomberg Consensus forecast is for a reading in August of 48.0.  However, a lower than anticipated University of Michigan consumer sentiment index, released earlier this month, could place some downward pressure on this release.  Weakness in the labor market continues to weigh heavily on consumer confidence indices, but has been slightly offset by positive equity performance.

10:00AM: The Federal Housing Finance Agency (FHFA) House Price Index (Risk: Neutral, Market Reaction: Significant): The Federal Housing Finance Agency (FHFA) House Price Index (HPI) 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.  Investor’s will be focusing on the June purchase only index, which in May experienced a monthly gain of 0.9%, compared to a decline of -0.3% in April.  On a yearly basis the HPI was down 5.6% in May.  The monthly index tends to be relatively volatile, but should continue to trend up over the coming months with the Case-Shiller home price index. 

Wednesday August 26th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index increased 5.6%; while the refinance index rose 6.9% and the purchase index rose 3.9% on the back of relatively low mortgage rates and declining home prices.

8:30AM: Durable Goods Orders (Risk: Upside, Market Reaction: Significant): Increased motor vehicle and commercial aircraft orders in June should help provide some upward momentum for durable goods orders in July.   The current Bloomberg consensus forecast is for an increment of 2.5%, compared to the previous month’s decline of 2.2%.  Thanks to the US government’s ‘Cash for Clunkers’ program auto orders could see a double digit gain during the month, which hasn’t happened since 2003.  But, the program is scheduled to end Monday (8/24).

10:00AM: New Home Sales (Risk: Upside, Market Reaction: Significant): On the back of a much higher than anticipated level of existing home sales, new home sales should encounter some upward momentum in July.  The current Bloomberg consensus is for a sales rate of 390K units, compared to last month’s reading of 384K units.  Recent increments in the NAHB’s homebuilder index have led to an increase in the number of housing starts and permits, which could indicate a bottom for residential real estate.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an unexpected decrease in inventories of -8.4mn barrels after rising 1.1mn a week prior.

11:30AM: Dennis Lockhart, Atlanta Federal Reserve Bank President, addresses the Chattanooga Area Chamber of Commerce.

Thursday August 27th:

8:30AM: GDP (Risk: Downside, Market Reaction: Significant): The preliminary estimate of 2Q09 GDP will likely be revised downward from the advance estimate of -1.0%.  The current Bloomberg consensus is for a revision to -1.5%.  The adjustment will come from negative revisions to inventory investment, business fixed investment, and personal consumption.  These will be marginally offset by small positive adjustments to government spending and net exports.  The GDP price index will likely remain unchanged at 0.2%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims unexpectedly rose last week by 18K to 576K. Despite the increments experienced over the past two weeks, claims should marginally improve over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 550K.  In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

8:30AM: Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 2Q09 earnings season.  However, since these profits tie into GDP growth they do not always move lock step with individual corporations’ aggregate earnings data.  In 1Q09 corporate profits reportedly grew around 4%, this positive trend will likely continue.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet rose to US$2.037trn from US$1.999trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

5:00PM: James Bullard, St. Louis Federal Reserve Bank President, speaks to the University of Arkansas MBA program.

Friday August 28th:

8:30AM: Personal Income and Outlays (Risk: Neutral, Market Reaction: Significant): Personal income may see a marginal improvement in July supported by a modest increment in wage and salary income.  The current Bloomberg consensus forecast is for an increment in personal income of 0.1%, compared to June’s dismal reading of -1.3%.  Despite the government’s ‘Cash for Clunkers’ program, consumer spending is unlikely to experience any significant gains, as the labor market continues to deteriorate.  The current Bloomberg consensus for consumer spending is a monthly increment of 0.3%, compared to June’s reading of 0.4%.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Considering recent positive financial and economic news, the Reuters/University of Michigan preliminary consumer sentiment number, released earlier this month, will likely be revised up marginally.  The current Bloomberg consensus forecast is for a reading of 64.0, compared to the preliminary reading of 63.2.  But, this is still below July’s final reading of 66.0.

Enjoy the weekend!

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US Week Ahead: Where’s the Upside?

August 15th, 2009 Michael McDonough Comments off

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

Monday August 17th:

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

Empire Survey Diffusion Indices:

nyfed

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

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

Tuesday August 18th:

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

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

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

Wednesday August 19th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index decline 3.5%; while the refinance index dropped 7.2% and the purchase index rose 1.1% on the back of relatively low mortgage rates and declining home prices.

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

Thursday August 20th:

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims unexpectedly rose last week by 4K to 558K. Despite last week’s small increment, claims should continue to marginally improve over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time.  The current Bloomberg consensus for this week’s initial claims number is 550K.

Source: The Conference Board

Source: The Conference Board

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

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

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet moved back below continued to decline falling toUS$1.999trn from US$1.974trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Friday August 21st:

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

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

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US Week Ahead: Steady As She Goes

August 8th, 2009 Michael McDonough 1 comment

On the economics front this week we have a rather light calendar compared to last week, but not without some significant releases.  The weeks starts out slow with no noteworthy releases on Monday, followed up by productivity and costs on Tuesday. The week closes with the hard hitting trifecta of July’s CPI, June’s Industrial Production, and August’s preliminary consumer sentiment release on Friday.  In the middle of the week we also have this month’s FOMC announcement, where despite early signs of a recovery, sustained weakness in the labor market makes it highly unlikely the FOMC will make any changes to its current policy stance. However, this meeting could help determine the fate of two of the Fed’s programs designed to bring liquidity back into the market; these include the TALF and treasury purchase program.  After last Friday’s better than anticipate labor report, the market will again be paying close attention to Thursday’s initial jobless claims release looking for further indications that the US labor market is on the long road to recovery.  We should also get a bit more insight into consumer behavior this week with the release of the wholesale trade data on Tuesday, and the much more closely watched retail sales data on Thursday.  We may have a relatively quiet week in terms of volume, but this week’s calendar is more about quality versus quantity.  Here is the entire calendar:

Monday August 10th:

None

Tuesday August 11th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a -0.2% decline in store sales over the previous week.

Productivity8:30AM: Productivity and Costs (Risk: Neutral, Market Reaction: Significant): Despite lay-offs and reduced capital expenditures increased productivity has been one of the few forces helping to support corporate profits.  Productivity will likely remain strong in 2Q09 with the current Bloomberg consensus forecast indicating an increment of 5.5% for productivity and a decline of -2.8% for unit labor cost.  The fact that during 2Q09 the market experienced a 1.6% drop in non-farm value added compared to a larger decline of 6.5% in hours work should help bolster the index.

10:00AM: Wholesale Trade (Risk: Negative, Market Reaction: Marginal): This indicator measure the level of inventories and sales by US wholesalers.  This indicator is can be a good forward looking indicator toward trends in consumer behavior as stores would like to ramp up inventories prior to any anticipated increment in sales.  However, continued weakness in the labor market coupled with no indication of a rebound in consumer spending this index could face some negative pressure.  It is also important to note that this data is on a two month lag.

Wednesday August 12th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week the overall index rose 4.4%; while the refinance index rose 7.2% on the back of relatively low mortgage rates.

Trade8:30AM: International Trade (Risk: Neutral, Market Reaction: Significant): The current Bloomberg consensus forecast for June’s US trade balance is –US$28.5bn compared to –US26.0bn a month prior.  Higher energy prices should lead to an increase in the value of US imports, which should be partially offset by higher exports stemming from a weaker dollar during the month.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.  Last week this report showed an increase of inventories of 1.7mn barrels after rising 5.2mn a week prior. Please see this brief discussion piece on FiatEconomics.com describing the potential effect of inventories on long-term oil prices.

2:00PM: Treasury Budget (Risk: Neutral, Market Reaction: Moderate): The current Bloomberg consensus for July’s US government budget deficit is –US$180.0bn compared to –US$94.3bn 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.

2:15PM: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): Despite early signs of an economic recovery, weakness in the labor market makes it highly unlikely the FOMC will make any changes to current monetary policy. But, it will be important to watch for any changes in the FOMC statement indicating a potential shift in the Fed’s bias.  The primary issue at this meeting will be whether or not to extend the Feds Term Asset Backed Securities Loan Facility (TALF), which was designed to help bolster consumer and business lending markets.  But, some market participants have been critical on this program’s effectiveness. There will likely also be some discussion over whether or not to continue a program to purchase long and medium-term treasuries set to expire in September.

Thursday August 13th:

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 34K to 550K last week as it seems all of the effects from the erroneous seasonal adjustment factors seems to be washed out.  Claims should continue to improve as the month’s progress, but likely won’t reach comfortable levels until next year.  The current Bloomberg consensus for this week’s initial claims number is 543K.

Retail Sales8:30AM: Retail Sales (Risk: Neutral, Market Reaction: Significant): Excluding auto sales, which have risen quite sharply due to the government’s ‘cash for clunkers’ initiative, retail sales should finish the month relatively weak.  The current Bloomberg consensus for July’s retail sales is +0.8%, however, this number includes auto sales.  Ex-autos the number stands at +0.1%, and this could face some negative pressure.  Continued weakness in the labor market combined with what is likely to be a lackluster back to school season will continue to depress this index.   In fact, a recent survey by the National Retail Federation found that families this year will be spending on average US$549 versus US$594 last year on back to school goods.

8:30AM: Import and Export Prices (Risk: Neutral, Market Reaction: Marginal): Energy prices declined in July, which will likely place some downward pressure on the import price index.  But, this effect could be at least partially offset by price increases for industrial equipment and food.  Overall this index will likely show a modest decline for the month.

10:00AM: Business Inventories (Risk: Neutral, Market Reaction: Moderate): June’s business inventories will probably continue to fall, albeit at a slower pace.  The current Bloomberg consensus forecast for the index is a decline of -0.8%.  This is on the back of a drop of -0.8% for factory inventories during the same month.  This would be the 10th straight month business inventories have fallen.  The good news is that at some point inventories will need to be replenished, which could eventually generate a spike in manufacturing.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  Last week the Fed’s balance sheet moved back below continued to decline falling to US$1.974trn from US$1.985trn a week prior.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

Friday August 14th:

8:30AM: Consumer Price Index (Risk: Neutral, Market Reaction: Significant): As with the import price index, a decline in energy prices partially offset by higher food prices probably helped to reduce pricing pressure for July’s headline CPI.  But, we should see a slightly higher gain in the core CPI number given price pressure from a number of goods including automobiles.  The current Bloomberg consensus forecast is for a CPI and Core CPI of 0.1% and 0.2%, respectively.

IP9:15AM: Industrial Production (Risk: Neutral, Market Reaction: Very Significant): Increased motor vehicle production should help support June’s industrial production number, which could also face some negative pressure from continued weakness in the mining sector. The current Bloomberg consensus forecast for June’s IP is a gain 0.6%.

10:00AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Slight improvements in job losses experienced over the last several weeks combined with rising equity markets should lead to a marginally higher outcome to Augusts’ preliminary consumer sentiment index.  The current Bloomberg consensus forecast for this release is 68.5 compared to a previous reading of 66.0.

Enjoy the Weekend!

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