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US Economics Week Ahead: Housing Side Story & A Special Election

January 15th, 2010 Michael McDonough Comments off

This week will primarily focus on earnings, with housing data acting as an intriguing side story. Companies expected to report earnings this week include: AMR Inc. (AMR), Bank of America (BAC), Citigroup (C), CSX (CSX), EBay (EBAY), GE (GE), Goldman-Sachs (GS), Google (GOOG) IBM (IBM), Morgan Stanley (MS), and Wells Fargo (WFC).

The housing side story will start on Tuesday with the release of the NAHB’s housing market index, which should come in relatively unchanged from last month.  On Wednesday attention will shift to housing starts/permits and MBA mortgage applications.  But, be aware, December’s cold weather may lead to a disappointing housing starts release.  If this does occur, then I recommend taking a look at the activity in new permits, which tends to be a forward looking indicator for starts—new permits rose 6% in November.  Other indicators to watch this week are Tuesday’s TIC data; Wednesday’s PPI release; and Thursday’s jobless claims, leading indicators and Philly Fed Survey.  The index of leading indicators should post its ninth consecutive month in positive territory.

Fed speak is non-existent this week ahead of the January 26-27 FOMC meeting, however, we could hear see some important headlines around Chairman Bernanke’s confirmation hearing.  His current term as Chairman is set to expire January 31st.  I anticipate that Bernanke will be reconfirmed, but any indications to the contrary have the potential to send ripples through the market.

Another key event this week will be Tuesday’s special election in Massachusetts to fill the seat of the late U.S. Sen. Edward Kennedy.  If the Republican candidate, Scott Brown, takes the election from Martha Coakley, then democrats lose their filibuster-proof, 60-seat majority in the U.S. Senate, potentially complicating the passage of healthcare reform. Scott Brown has indicated he is not in favor of the current reform, while interim Senator Paul Kirk—currently sitting in Kennedy’s old seat—would vote in favor of it.

However, I am no political pundit, but a Republican victory could prompt Democrats to expedite a vote on healthcare reform to exploit a gap between the special election and what would be Mr. Brown’s swearing in. From my understanding, the election cannot be certified until all absentee and military ballots are tallied, which I am told could take up to 10 days after the actual election–other sources have indicated Brown’s swearing in could be pushed back to as late as February 20th. To the outrage of some voters, this could award Democrats the opportunity to pass the reform while maintaining their filibuster proof majority. The bottom line here is a Republican victory in Massachusetts will likely lead to a political pickle. This is just something to think about while watching Tuesday’s results.

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

Monday, Jan. 18

Holiday: All Markets Closed

Tuesday, Jan. 19

9:00 a.m. EST: November’s 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.

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.”

1:00 p.m. EST: January’s Housing Market Index (Risk: Neutral, Market Reaction: Moderate): After receiving a boost from the original first time home buyer tax credit and the Fed’s MBS purchase program—to keep mortgage rates low—the HMI has been relatively flat , trending slightly down from September’s peak.  Concerns by builders regarding unemployment, consumer credit, and the eventual impact of the expiration of temporary government programs designed to bolster the sector will likely keep the HMI suppressed for the time being.  The current Bloomberg consensus forecast is for a reading of 17 in January compared to 16 in December; any reading below 50 indicates negative sentiment toward the sector.

Wednesday, Jan. 20

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 14.3% last week after rising a modest 0.5% a week prior.  Refinance applications jumped 21.8%, while purchase applications rose just 0.8%.  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.

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 fell -3.0% compared to an increment of +1.5% a week prior.

8:30 a.m. EST: Housing Starts (Risk: Negative, Market Reaction: Significant): Given extremely cold weather across the country in December, I would not be surprised to see housing starts disappoint what I believe is an overly optimistic consensus forecast.  However, November’s data indicated a 6.0% rise in permits, which tends to be a good forward looking indicator for starts.  With this in mind, if starts disappoint, then it will be important to monitor any changes to permits data for indications of future strength. The current Bloomberg consensus forecast is calling for housing starts to rise to a seasonally adjusted annual rate of 579,000, compared to 574,000 in November. 

8:30 a.m. EST: December’s Producer Price Index (Risk: Neutral, Market Reaction: Moderate): The PPI surprised to the upside in November rising 1.8%, largely due to an increment in energy prices.  But, December’s PPI should show a very marginal change, with a modest decline even within the realm of possibility, especially after November’s large gain.  The current Bloomberg consensus forecast is for now change in the PPI, while the Core-PPI is anticipated to rise by 0.1%.  This release loses some importance since the CPI was already released last week.

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 1.4% last week on a yearly basis.

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 3.7 million barrels versus a rise of 1.3 million barrels a week prior.

Thursday, Jan. 21

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 11K last week to 444K, after rising 1K a week prior.  The four week moving average improved to 440,750 from 449,750.  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.   Given the holidays—Martin Luther King Jr. Day this week—tricky seasonal adjustment factors can skew weekly claims data.

10:00 a.m. EST: December’s Leading Indicators (Risk: Neutral, Market Reaction: Moderate): December’s leading indicator index will likely show its 9th consecutive month of positive readings.  The current Bloomberg consensus forecast is expecting a +0.7% rise for the month, compared to a +0.9% increment in November.  The biggest positive contributions for the index will likely come from the yield curve, followed by initial jobless claims, and stock prices; while money supply is expected to be the largest negative factor.

10:00 a.m. EST: January’s Philly Fed Survey (Risk: Negative, Market Reaction: Significant): Recent weakness in the Philly Fed’s 6-month outlook index could translate into weakness for this month’s release.  The 6-month outlook index peaked in June at 60.1 and has since fallen to 24.4 in December.  Additionally, in December the survey’s new orders component fell to 6.5 from 14.8.  But, it should be noted that the New York Fed survey surprised to the upside last week, which could bode well for the Philly release.  The current Bloomberg consensus forecast is for a reading of 18.0, compared to 20.4 in December. 

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 rose to a record last week to US$2.274trn from US$2.216trn, on increased purchases of agency debt and mortgage backed securities.  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. 22

10:00 a.m. EST: State & Regional Unemployment Rates (Risk: Neutral, Market Reaction: Marginal): This data is unlikely to cause any market reaction, but will add details behind December’s employment report.

Enjoy the weekend!

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US Economics Week Ahead: No Change by the Fed

December 12th, 2009 Michael McDonough Comments off

There is no doubt that this week’s FOMC meeting will steal the economic headlines, however, the result is likely to be rather anticlimactic.  I do not anticipate any major changes to the FOMC’s statement, and certainly no shift in the target rate—despite last month’s better than expected employment data.  The Fed will not view a single data point as the start of a trend, and regardless of being on their minds the employment data will not have a significant impact at this meeting.  After Wednesday we will inevitably be one meeting closer to an eventual rate hike, however, ahead of any hike the Fed would remove the phrase  ‘extended period’ from the statement, and I do not yet believe that is in the cards.

Other important indicators this week include the producer price index, consumer price index, and industrial production.  On the inflation front both headline producer and consumer prices will face some upward pressure due to higher energy and food prices, while the core releases should remain tame.  Industrial production will face some headwinds from a relatively mild month reducing utility output, which should be more than offset by manufacturing output.  An increase in aggregate manufacturing hours worked during the month help to support this belief.

During the week we will also hear earnings from FedEx (FDX), Best Buy (BBY), Nike (NKE), Oracle (ORCL), and Research in Motion (RIMM) to name a few.  In other news, the Senate Banking Committee is expected to vote Thursday on the reconfirmation of Federal Reserve Chairman Bernanke.  Boeing is also expected to conduct its first test flight of their new 787 Dreamliner, after numerous delays. Finally, President Obama will attend the UN Climate summit in Copenhagen to push for several environmental initiatives.

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

Monday, Dec. 14

Nothing

Tuesday, Dec. 15

First day of the FOMC meeting

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 fell -1.3% compared to a drop of -0.1% a week prior.

8:30 a.m. EST: November’s Producer Price Index (Risk: Neutral, Market Reaction: Moderate): Rising food and energy prices during the month will likely place some upward momentum on the November’s PPI.  However, increments in the core number should be only modestly positive after falling -0.6% in October.  The current Bloomberg consensus forecast is for a monthly increment in headline PPI of 1.0%, compared to 0.2% for the core release.

8:30 a.m. EST: December’s Empire State Manufacturing Survey (Risk: Negative, Market Reaction: Moderate): Recent weakness in the manufacturing sector, combined with a declining new orders index could place additional downward pressure on the NY fed’s manufacturing survey for December after falling 11 points to 23.51 in November.  Nevertheless, the current Bloomberg consensus forecast is anticipating a rise in the month to 25.0.  As always it will be important to monitor the new orders-a forward looking component—, prices paid, and employment aspects of the survey.

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 1.2% last week on a yearly basis.

9:00 a.m. EST: October’s 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.

9:15 a.m. EST: Industrial Production (Risk: Neutral, Market Reaction: Significant): A significant increment in manufacturing hours worked during the month—a positive for industrial production—will be partially offset by an anticipated decline in utility output, stemming from relatively mild weather across the country.  With this in mind the current Bloomberg consensus forecast is for a monthly increment in industrial production of 0.6%, versus 0.1% in October, with capacity utilization rising to 71.2% from 70.7%

1:00 p.m. EST: December’s Housing Market Index (Risk: Neutral, Market Reaction: Moderate): The NAHB Housing Survey, which measures home builder confidence, should continue to benefit from the extension/expansion of the first time home buyer tax credit.  However, numerous headwinds still exist for the sector so any improvements in December are likely to be modest.  The index was unchanged at 17 in November.

Wednesday, Dec. 16

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 8.5% last week after rising 2.1% a week prior.  Refinance applications climbed 11.1%, while purchase applications rose 4.0% 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.

8:30 a.m. EST: November’s Consumer Price Index (Risk: Neutral, Market Reaction: Significant): As with the PPI, higher energy and food prices during the month will likely add some pressure on headline CPI, while core CPI should only show a modest rise. The current Bloomberg consensus forecast is for an increment of 0.4% for the headline number, and 0.1% for core.  It may be important to note that headline CPI will likely experience its first year over year gain since February 2009.

8:30 a.m. EST: November’s Housing Starts (Risk: Neutral, Market Reaction: Moderate): Housing starts look to be up in November on the back of good weather, after falling more than anticipated in October. Additionally, construction jobs declined by only -27K during the month compared to -56K in October. The Bloomberg consensus forecast anticipates starts to rise to 575K, versus 529K in October; I anticipate that new building permits should also rise during the month after declining by -4.0% a month prior—permits tend to be a forward looking indicator toward starts.

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 -3.8 million barrels versus a jump of 2.1 million barrels a week prior.

2:15 p.m. EST: December’s FOMC Announcement (Risk: Neutral, Market Reaction: Very Significant): Despite being the week’s most eagerly anticipated piece of economic news, the outcome is likely to be somewhat anticlimactic.  I do not anticipate any major changes compared to November’s FOMC statement, and certainly no shift in the target rate.  The Fed will not view one month of better than anticipated employment data as a trend, and thus it is very unlikely to have a significant impact at this meeting, however, it will be on their minds.  Nevertheless, we will be one meeting closer to an eventual rate hike, but I do not yet anticipate the removal of the key phrase ‘extended period’ from the FOMC’s statement.  The Fed will likely reiterate that employment is still lagging and that “with substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time”.

Thursday, Dec. 17

8:30 a.m. EST: Third Quarter’s Current Account (Risk: Neutral, Market Reaction: Marginal): The third quarter current account deficit likely widened on the back of a wider trade deficit stemming from more expensive energy imports.  The current account deficit totaled $99 billion in the second quarter.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 17K last week to 474K, after falling 5K a week prior. Despite the decline in last week’s claim number the 4 week moving average improved to 473,750 from 481,500.  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 465K, a decrease of -9K from last week.

10:00 a.m. EST: November’s Leading Indicators (Risk: Neutral, Market Reaction: Moderate): November’s leading indicator index will likely show its 8th consecutive month of positive readings.  The current Bloomberg consensus forecast is expecting a +0.7% rise for the month, compared to a +0.3% increment in October.  The biggest positive contributions for the index will likely come from the yield curve, initial jobless claims, and the average workweek, while the University of Michigan’s consumer expectations index should be the largest negative factor.

10:00 a.m. EST: December’s Philadelphia Fed Survey (Risk: Negative, Market Reaction: Moderate): As with the NY fed survey, recent weakness in the manufacturing sector will likely place some downward pressure on the Philly fed survey.  The survey’s six month expectations index peaked at 60.1 in June and has since fallen to 36.8 in November—this tends to be an ominous sign for the spot reading.  Nevertheless, the current Bloomberg consensus forecast is anticipating only a modest decline to 16.5 from 16.7 in November.  However, the forecast range goes from a high of only 18.0 to a low of 6.9.

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 shrank last week to US$2.169trn from US$2.186trn, primarily due to a reduction in long-term loans to banks.    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. 18

Quadruple Witching

Enjoy the weekend!

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Housing Pains & Inflation Creep

November 18th, 2009 Michael McDonough Comments off

October’s Housing Starts disappointed the market finishing at an annual rate of 529,000 (-10.6%), while September’s release was revised up to 592K from 590K. Permit’s in October declined -4.0%, to 552K. Single-family starts fell -6.8%, while multi-family homes plummeted by -34.6%. The Bloomberg consensus forecast was for starts at 600K, with forecasts ranging from 570K to 630K.  This release was indicative of a housing market that is struggling rather than in the midst of a strong recovery.

Additionally, the level of mortgage applications continued to decline,–purchase applications hit a 12 year low–likely due what would have been the expiration of the first time home buyer tax credit.  Meaning, those looking to take advantage of the tax credit already have; it will take some time for a new group of buyers to enter the market on the back of the the tax credit’s extension.

October Consumer Price Index rose +0.3% after rising +0.2% in September. This compares to a Bloomberg consensus forecast of +0.2%. The core CPI increased by +0.2% during the month after rising +0.2% a month prior.  The main culprit behind the month’s larger than anticipated jump was a 1.7% increment in vehicle prices, which if factored out would have led to a flat core CPI number.  As expected, energy prices climbed 1.5%, adding momentum to the headline release.  Surprisingly, food prices were relatively stable during the month rising only +0.1%.  Despite adding some ammunition for inflation hawks, I do not believe this report indicates any significant inflation concerns over the near-term, but of course should be monitored as an eventual uptick inflation is inevitable.

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Housing Starts Disappoint & PPI Turns Negative

October 20th, 2009 Michael McDonough Comments off

September Housing Starts finished the month at an annual rate of 590K (+0.5%). At the same time, August Housing Starts were revised down to 587K versus its original release of 598K. Housing permits declined by -1.2%, to 573K. Unlike starts, August permits experienced a modest upward revision to 580K from 579K. Single-family starts rose +3.9%, while multi-family units dropped -15.2%.  September’s gains were essentially a wash when you factor in August’s revisions.  On a regional basis, in the South starts rose +7.1%-a record gain– while they fell -8.8% in the West, -5.5% in the Northeast, and -1.8% in the Midwest.

September Producer Price Index (PPI) fell -0.6%, after rising +1.7% in August. The Core PPI, which excludes food and energy, fell -0.1% in September following +0.2% increment in August.  The decline in the headline number was not unexpected given a pullback in energy prices for the month.  For the moment, the risk of deflation continues to outweigh the risk for immediate inflation.  However, the likely path is that core prices will remain stagnant until the economic recovery gains more traction and inflationary pressures once again take hold.

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US Economics Week Ahead: Earnings Usurp Housing Data

October 16th, 2009 Michael McDonough Comments off

On the economic front the market will be encountering some important housing related releases in addition to the Fed’s Beige Book on Wednesday.  On the housing front, on Monday the market will get a peak at October’s NAHB/Wells Fargo Housing Market Index, followed by housing starts on Tuesday.  However, the most important housing release of the week should be existing home sales for September, which is being reported on Friday.  This index unexpectedly declined last month, causing investors to question the sustainability of the retrenchment of the US housing market.  Nevertheless, the fact that the inventory of existing homes declined to a 2.5 year low was somewhat overlooked.  However, rising mortgage delinquencies and a weakening labor market continue to cast a shadow over a sustained recovery in the sector.  Other important indicators this week include housing starts and PPI on Tuesday, and jobless claims and September’s leading indicator index on Thursday.  The week will also see quite a bit of Fed speak, which could generate some headlines as investors look for clues on when the Fed may begin to remove begin removing support from the markets.

Nonetheless, the show this week will probably be stolen by a slew of earnings releases that include 3M, Apple, Caterpillar, Microsoft, McDonald’s, Pfizer, Coca-Cola, American Express, and DuPont—to name a few.  Also, Windows 7 is schedule for release on Thursday, which could lead to an increase in computer spending.

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

Monday, Oct. 19

1:00 p.m. EDT: October’s Housing Market Index (Risk: Neutral, Market Reaction: Marginal): The NAHB/Wells Fargo Housing Market Index is unlikely to show much improvement this month as the US Congress continues debating over whether or not to extend or enlarge the first time home buyer tax credit.  Prior to October, the index has experienced three consecutive months of gains.  The current Bloomberg consensus forecast is for a reading of 20, compared to last month’s reading of 19. 

Tuesday, Oct. 20

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 0.6% in store sales compared to a gain of 0.3% a week prior.

8:30 a.m. EDT: September’s Housing Starts (Risk: Neutral, Market Reaction: Significant): According to the Bloomberg consensus forecast September’s housing starts are expected to increase to a seasonally adjusted annual rate of 0.615 million units compared to August’s level of 0.598 million units.  Housing starts have essentially moved sideways over the past several months.  But, given the large supply of homes already on the market this may not be entirely bad.  It will be important to monitor the level of new building permits in the release as it is forward looking to starts.

8:30 a.m. EDT: September’s Producer Price Index (Risk: Neutral, Market Reaction: Moderate): Lower energy prices for the month will likely bring down September’s producer price index down after gaining 1.7% in August.  The current Bloomberg consensus forecast is for a decline of -0.3%.  The core-PPI is expected to show a modest gain with a consensus forecast of +0.1%.

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 0.6% last week on a year over year basis.

8:00 p.m. EDT: Charles Plosser, Philadelphia Federal Reserve Bank President, is giving a speech on monetary policy to the Stanford Institute for Economic Policy Research

Wednesday, Oct. 21

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 1.8% after jumping 16.0% a week prior.  The refinance index fell 0.1%, while the purchase index fell 5%. Refinances made up 67.4% of all applications last week.

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 0.4 million barrels versus a decline of -1.0 million barrels a week prior.

2:00 p.m. EDT: Beige Book (Risk: Neutral, Market Reaction: Moderate): Investors will be looking to see if any of the Fed’s districts begin reporting modest growth.  The Beige Book has been growing somewhat more optimistic with most of the Fed’s district reporting that declines were at least leveling off or stabilizing.

4:30 p.m. EDT: Eric Rosengren, Boston Federal Reserve Bank President, is opening the Boston Fed’s annual economic conference on re-evaluating regulatory and monetary policy.

Thursday, Oct. 22

8:30 a.m. EDT: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 10K to 514K, after falling 33K 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 modest uptick for this week’s initial claims release to 519K from 514K.

10:00 a.m. EDT: FHFA House Price Index (Risk: Neutral, Market Reaction: Marginal): The Federal Housing Finance Agency (FHFA) monthly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s.  The FHFA’s monthly purchase only index gained 0.3% in July with Junes +0.5% increment being revised down to 0.1%.  The monthly index tends to be relatively volatile, but should continue to trend up in-line with the Case-Shiller home price index.

10:00 a.m. EDT: September’s Leading Indicators (Risk: Neutral, Market Reaction: Moderate): The Conference Board’s Index of leading indicators should rise for the sixth consecutive month in September.  The current Bloomberg consensus forecast is expecting a +0.9% rise for the month, compared to a +0.6% increment in August.  The biggest positive contributions for the index will likely come from the yield curve, UMich expectations index, and jobless claims.

10:30 A.M. EDT: Eric Rosengren, Boston Federal Reserve Bank President, is presenting a paper on whether financial stability should be added to central banks objective.

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.

1:30 P.M. EDT: William Dudley, New York Federal Reserve Bank President, will be moderating a panel on monetary policy instruments and the Fed’s supervisory function.

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$2.174trn from US$2.120trn 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.23

8:30 a.m. EDT: Ben Bernanke, Federal Reserve Chairman, will give a speech on the supervisory landscape at the Boston Fed’s economic conference.

10:00 a.m. EDT: September Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Strong pending home sales should help bolster existing home sales after last month’s surprising decline.   The current Bloomberg consensus forecast is projecting an increase to a seasonally adjusted annual rate of 5.35 million unites, compared to 5.10 million units a month prior.  Despite last month’s decline in home sales the inventory of existing homes dropped to 8.5 months from 9.3 months in July.  It may also be possible we could see a spike in this data as potential home buyers try to close deals before the current expiration of the first time home buyer tax credit on November 30th.

11:30 a.m. EDT: Donald Kohn, Federal Reserve Vice Chairman, will participate in a panel related to international perspectives at the Boston Fed’s economic conference.

Enjoy the weekend!

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Jobless Claims & Housing Starts Both Improve

September 17th, 2009 Michael McDonough Comments off

August housing starts rose 1.5% to 0.598mn, compared to a consensus estimate of 0.600mn.  Looking further into the details, single-family starts are down -3.0%, while multi-unit homes grew by +25.5%.In August permits rose by 2.7%, to 579K. July’s permits were revised to 564K from 560K. Going forward there could be 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.”  However, there have been some discussions over extending the program,  which could negate some if not all of these effects.

Initial claims fall 12K to 545K finishing much better than the consensus forecast of 575K. The 4wk average of new claims fell 8,750 to 563,000.  Continuing claims rose by 129,000 to a seasonally adjusted 6.23mn.  initial claims should continue to improve over the months ahead, but remain well above comfortable levels, and will continue to adversely impact the monthly payroll number.  In fact using a simple regression initial claims would still indicated a monthly decline in payrolls of roughly -500K.  But, recently this regression has been exaggerating the actual impact.

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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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Housing Starts Fall, While Producer Prices Decline

August 18th, 2009 Michael McDonough Comments off

Housing starts fell to 0.581 in July compared to 0.587mn. This number was slightly below the market consensus. The 1% drop in starts comes after a 10% increase in July.  Single family starts actually rose 1.7%, but this was more than offset by a 13% decline in multi-family starts.  Starts fell 16% in the Northeast, 2% in the West and 1% in the South, while increasing 13% in the Midwest. Despite starts being on an uptrend, over the past couple months, it is important to remember that this index remains well below its historical average and is indicative of a weak housing market.  Nevertheless, most indicators continue pointing towards a bottom in the housing market, including yesterday’s home builder’s index.  Foreclosures, high inventories, and a weak labor market continue to act as the sector’s Achilles heel.

PPI fell more than anticipated in July at -0.9% on the back of lower energy prices combined with an a unexpected drop in food prices.  Core-PPI fell -0.1%.  The drop in Core-PPI was well rounded across many goods.  On a year over year basis headline PPI has fallen a record 6.8%, while Core-PPI is up 2.6%.

Group PPI (MoM)
Finished goods -0.9%
Finished consumer goods -1.1%
Finished consumer foods -1.5%
Crude -7.4%
Processed -0.9%
Finished consumer goods, excluding foods -0.9%
Nondurable goods less foods -1.0%
Durable goods -0.5%
Capital equipment -0.2%
Manufacturing industries 0.0%
Nonmanufacturing industries -0.3%
Intermediate materials, supplies, and components -0.2%
Materials and components for manufacturing 0.4%
Materials for food manufacturing -1.8%
Materials for nondurable manufacturing 1.4%
Materials for durable manufacturing 0.6%
Components for manufacturing 0.0%
Materials and components for construction -0.3%
Processed fuels and lubricants -1.6%
Manufacturing industries -1.1%
Nonmanufacturing industries -1.8%
Containers -0.4%
Supplies -0.3%
Manufacturing industries 0.5%
Nonmanufacturing industries -0.5%
Feeds -3.8%
Other supplies -0.2%
Crude materials for further processing -4.5%
Foodstuffs and feedstuffs -6.1%
Nonfood materials -3.4%
Nonfood materials except fuel -6.6%
Manufacturing -6.9%
Construction 0.2%
Crude fuel 3.0%
Manufacturing industries 0.9%
Nonmanufacturing industries 3.1%
Special groupings
Finished goods, excluding foods -0.7%
Intermediate materials less foods and feeds -0.1%
Intermediate foods and feeds -2.0%
Crude materials less agricultural products -2.8%
Finished energy goods -2.4%
Finished goods less energy -0.4%
Finished consumer goods less energy -0.6%
Finished goods less foods and energy -0.1%
Finished consumer goods less foods and energy -0.1%
Consumer nondurable goods less foods and energy 0.4%
Intermediate energy goods -1.4%
Intermediate materials less energy 0.0%
Intermediate materials less foods and energy 0.2%
Crude energy materials -6.2%
Crude materials less energy -3.3%
Crude nonfood materials less energy 2.9%
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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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June Housing Starts Show Big Gains

July 17th, 2009 Michael McDonough Comments off
June housing starts came in this morning well above expectations increasing 3.6%, totaling 582K (SAAR) units. Economists has been anticipating 530K. This is the index’s second consecutive month of gains, which could indicate some stabilization for the sector. There were also some positive revisions to April’s and May’s starts numbers. The increase was due to a 14.4% increment in single-family home starts, while multi-family housing starts actually declined by 25.8%. Regionally, the South experienced the largest increase in starts with a gain of 13.9%, while the West was the weakest with a gain of only 1.9%. Housing permits were up 8.7% in June. Overall this is a positive report for the housing sector, but we will need to see significant improvements in the level of foreclosures and the supply glut currently on the market prior to any true recovery.
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