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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: 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: 2010 Starts with a Bang

December 31st, 2009 Michael McDonough Comments off

It is a good thing investors will have the entire weekend to recover from their New Year’s celebrations, because 2010 is starting with a bang, at least in terms of economic data.  Undoubtedly, the week’s most critical release will be Friday’s employment report, where excitement is building that payrolls could show their first monthly advance since gaining 120K jobs in December 2007. What a difference a year makes, considering it was announced last year that payrolls fell -524K December.  Leading up to this release data-centric investors will analyzing both the ISM manufacturing and non-manufacturing’s employment indices along with the ADP employment report for clues toward Friday’s release.

Other significant indicators this week include manufacturing ISM on Monday, pending home sales on Tuesday, non-manufacturing ISM and FOMC minute on Wednesday, and jobless claims and chain store sales on Thursday.  The manufacturing ISM should remain above 50 for the fifth consecutive month; however, weakness in some of the Fed’s regional manufacturing survey could place some negative pressure on the index leading to only a marginal gain from November’s release.  The FOMC minutes should prove to be a non-market moving event simply providing further details behind the Fed’s eventual exit strategy and the termination of its unprecedented accommodative policies.  Pending home sales should help provide some insight behind the health of home sales after the would-be expiration of the first time home buyer tax credit on November 30th.  Finally, chain store sales on Thursday will provide one of the first detailed looks at the holiday shopping season.

Fed speakers will be relatively active next week with Chairman Bernanke, Vice Chairman Kohn, and Atlanta Fed President Lockhart opening the week up on Sunday participating in a panel discussion for the American Economic Association in Atlanta.  On the earnings front, Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Family Dollar Stores (FDO), and Monsanto (MON) are all expected to report this week.  Also, look for headlines from the 2010 Consumer Electronics Show that starts next week and could attract over 100K visitors.

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

Monday, Jan. 4

10:00 a.m. EST: December’s ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The Manufacturing ISM Index should remain above 50 for the fifth consecutive month, but experience only a marginal gain from November’s reading of 53.6.  Weakness in some of the Fed’s regional surveys could place downward pressure on this month’s release; however, some of this pressure should be alleviated by the fact that in November the ISM New Orders index came in at a relatively robust 60.3.  It will be important to continue monitoring the ISM’s new orders, employment, and prices paid index for implications toward the future and other sectors of the economy.  The current Bloomberg consensus forecast is for an ISM reading in December of 54.8, compared to 53.6 in November.

10:00 a.m. EST: November’s Construction Spending (Risk: Neutral, Market Reaction: Moderate): Construction spending will likely remain weak in November, and downward revisions to past data are likely to continue.  Construction spending was unchanged in October, but after revisions declined by -1.6% in September.  The current Bloomberg consensus forecast is for a decline in construction spending of -0.5%.

10:15 a.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on government crisis response to the American Economic Association.

Tuesday, Jan. 5

December’s Motor Vehicle Sales (Risk: Neutral, Market Reaction: Moderate): Attractive dealer year-end incentives during December will likely help boost motor vehicle sales during the month.  The current Bloomberg consensus forecast for domestic vehicle sales is an annual pace of 8.4 million units, compared to 8.2 million a month prior.

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number rose +0.4% compared to an increment of +0.6% a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.9% last week on a yearly basis.

10:00 a.m. EST: November’s Factory Orders (Risk: Neutral, Market Reaction: Marginal): After rising 0.6% in October, factory orders should continue to rise in November on the back of relatively strong durable goods orders and refinery orders stemming from higher energy prices.  The current Bloomberg consensus forecast is for a rise in factory orders of 0.4%.

10:00 a.m. EST: November’s Pending Home Sales (Risk: Downside, Market Reaction: Significant): This release should help quantify the impact of what would have been the expiration of the first time homebuyer tax credit on November 30th.  It is expected that a wave of buyers rushed to close their purchases before the end of the month to qualify for the first time home buyer tax credit.  Mortgage applications have recently been on the decline to supporting this theory.  It is expected that an extension/expansion of the program will eventually bring a new group of home purchasers into the market.

Wednesday, Jan. 6

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): The MBA was closed last week so this week’s release will include two weeks of data. 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 fell 10.7% two weeks ago after rising 0.3% a week prior.  Refinance applications fell 10.1%, while purchase applications dropped -11.6%.  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.

7:30 a.m. EST: December’s Challenger Job Cut Report (Risk: Neutral, Market Reaction: Marginal): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs.  Meaning layoffs announced in November may not actually take place until December, or even take place slowly over an extended period of time.  I anticipate this report will show continued improvements as companies have mostly completed large scale layoffs.

8:15 a.m. EST: December’s ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number.  Any significant swings in this release combined with unexpected shifts in the manufacturing and non-manufacturing ISM employment indices could shift the consensus forecast for Friday’s employment release.

10:00 a.m. EST: December’s ISM Non-Manufacturing (Risk: Neutral, Market Reaction: Significant): After unexpectedly falling below 50 in November, investors will have the opportunity to decide whether this is the beginning of a new trend or a one off event.  Investors will also be paying close attention to the non-manufacturing ISM’s employment index, which could have some sway over the whisper number ahead of Friday’s employment report.  The current Bloomberg consensus forecast is for a reading of 50.4 compared to 48.7 a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of -1.5 million barrels versus a drop of -4.9 million barrels a week prior.

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Significant): The FOMC minutes should provide additional details behind the Fed’s eventual exit strategy and the termination of its unprecedented monetary easing.  However, I think it is still too early in the year to anticipate anything tremendously market moving from this report.

Thursday, Jan. 7

Chain Store Sales (Risk: Neutral, Market Reaction: Moderate): The market will be looking closely at this report as it is the first detailed report covering the holiday shopping season.  Early reports have indicated that the holiday shopping season may have been more robust than some had anticipated, but considering last year’s base this may not be as positive as it sounds.  Nevertheless, higher is better; I anticipate the strongest results will come from discount retailers as consumers grow increasingly budget conscious.

6:00 a.m. EST: Monster Employment Index (Risk: Neutral, Market Reaction: Marginal): Given the added significance of this week’s employment report this typically overlooked employment index could garner some extra attention. This survey conducted by Monster Worldwide Inc. measures online job demand.  According to the company, “The trend in online job availability has been largely flat for most of the year and remained so in November,” said Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide. “While job losses have continued to ease, businesses remain cautious about adding to their payrolls in light of sustained economic uncertainty.”

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 22K last week to 432K, after falling 28K a week prior.  It is important to note that the Christmas holiday, and the seasonal adjustment around it, could be skewing last week’s data.  The four week moving average improved to 460,250 from 465,250.  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.

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.

1:00 p.m. EST: Tom Hoenig, the Kansas City Federal Reserve Bank President, will give a speech on the economic outlook.

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$2.219trn from US$2.221trn, due to marginal reduction in the Fed’s agency MBS.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 8

8:30 a.m. EST: December’s Employment Situation (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus is for a change in payrolls of 0, versus a decline of -11K in November.  Individual forecasts range from -50K to +40K.  A steady reduction in the number of initial unemployment claims bodes well for improving payroll data, but I think we could see an eventual reversal of seasonal hires as the holiday shopping season comes to a close in the months ahead.  I will be paying close attention to the index’s temporary employment index, which recently has been improving, and is a good forward looking indicator toward payrolls.  I continue to believe, despite a potentially positive reading in December, the employment situation will get worse before it stabilizes and begins to improve, albeit gradually, in 2Q10.  The current Bloomberg consensus forecast for the unemployment rate is 10.0%, unchanged from November.

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

1:35 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak at the Maryland Bankers Association “First Friday” Economic Outlook Forum.

3:00 p.m. EST: November’s Consumer Credit (Risk: Neutral, Market Reaction: Moderate): I anticipate that little has changed in this sector, and we should continue to see a decline in consumer credit in the face of consumers less willing to borrow and banks less willing to lend.  November would be the tenth consecutive month consumer credit has declined.  In October consumer credit declined by -$3.5 billion, after declining by a revised -$8.9 billion in September.  The current Bloomberg consensus forecast is for a decline of consumer credit outstanding of -$5.0 billion for November.

Enjoy the weekend!

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US Economics Week Ahead: Quiet for the Holidays

December 24th, 2009 Michael McDonough 2 comments

The last week of 2009 bears some good news for investors, and that is there isn’t much of it.  The week ahead could very well be the quietest week of 2009.  However, not all is still, there are several quasi-important releases related to housing, consumer confidence, and manufacturing.  Data-centric investors will be analyzing the Dallas and Kansas City fed’s manufacturing reports along with the Chicago PMI for clues toward December’s ISM reading.  The week’s most lauded release should be December’s consumer confidence report on Tuesday.  Confidence should see a nice jump on what is generally perceived as an ongoing economic recovery.  Jobless claims could face some pressure this week on the back of inclement weather in the northeast, which has the potential to reduce employment in weather sensitive industries.  The treasury will be auctioning $118bn in notes during the week tying the record (set last month); the results of this auction could have some impact on markets.  Also, be on the lookout for after Christmas sales by retailers looking to bolster sales and attract customers who received store gift cards in their stocking.  In any case, enjoy the quiet week and have a great holiday!

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

Monday, Dec. 28

10:30 a.m. EST: December’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, but tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested, “Texas factory activity showed its first signs of growth in more than a year, according to business executives responding to November’s Texas Manufacturing Outlook Survey. The production index, a key indicator of state manufacturing conditions, turned positive for the first time since July 2008. Other key indexes of current factory activity—including capacity utilization, shipments, new orders and growth rate of orders—also moved into positive territory.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Prior 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 jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Tuesday, Dec. 29

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number rose +0.6% compared to a drop of +0.4% a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.9% last week on a yearly basis.

9:00 a.m. EST: October’s S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): With the FHFA House Price Index moving higher in October after posting two weaker months, and  the Case-Shiller’s general upward trend over the prior five months—rising 3.1% during the third quarter—we should see another gain in October.

10:00 a.m. EST: December’s Consumer Confidence (Risk: Neutral, Market Reaction: Significant): An increment in the Reuters/University of Michigan consumer sentiment index to 72.5 from 67.4 in December should bode well for consumer confidence.  An improvement in confidence would be in-line with what is generally perceived as an economic recovery.   The current Bloomberg consensus forecast is for a reading of 47.5 compared to November’s reading of 53.0.

10:00 a.m. EST: December’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, “Across all regions, institutional investors are largely treading water; neither increasing nor reducing their aggregate holdings of risky assets,” commented Froot. “However, the aggregate figures mask some country- and region-specific views. This month, for example, institutional investors aggressively pared their holdings in selected markets, such as Australia, while continuing to add to their emerging markets holdings. Overall, investors are displaying some caution about the current level of equity valuations, and a desire to see more evidence of real economic activity and aggregate demand, particularly in the US, before adding to equity exposures.”

Wednesday, Dec. 30

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications fell 10.7% last week after rising 0.3% a week prior.  Refinance applications fell 10.1%, while purchase applications dropped -11.6%.  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.

9:45 a.m. EST: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could begin reacting to the data as early as 9:42 a.m.  This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading.  The current Bloomberg consensus forecast is for a reading of 54.9, versus to 56.1 in November.  The PMI covers both the manufacturing and non-manufacturing sectors.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an unexpected decline of -4.9 million barrels versus a drop of -3.7 million barrels a week prior.

3:00 p.m. EST: 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.

Thursday, Dec. 31

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell 28K last week to 452K, after rising 17K a week prior.  The four week moving average improved to 465,250 from 467,500.  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.  Last week’s inclement weather could place some pressure on this week’s claims data.

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

11:00 a.m. EST: December’s Kansas City Fed Manufacturing Survey (Risk: Neutral, Market Reaction: Marginal): Data-centric investors will be looking at the Kansas City Fed’s mostly overlooked manufacturing survey for clues toward December’s ISM release.  Specifically, these investors will be watching the surveys new orders and shipments components.

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 jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 1

All Markets Closed—New Year’s Day!

Enjoy the weekend!

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

December 19th, 2009 Michael McDonough Comments off

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

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

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

Monday, Dec. 21

8:30 a.m. EST: November’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has been trending upwards over the preceding nine months, and should show some improvement in November from its reading of -1.08 in October.

Tuesday, Dec. 22

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number rose +0.4% compared to a drop of -1.3% a week prior.

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

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

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.5% last week on a yearly basis.

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

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

Wednesday, Dec. 23

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

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

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

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

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an unexpected decline of -3.7 million barrels versus a drop of -3.8 million barrels a week prior.

Thursday, Dec. 24

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

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

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

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Dec. 25

All Markets Closed—Merry Christmas!

Enjoy the weekend!

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US Economics Week Ahead: 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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US Economics Week Ahead: Black or Red Friday?

December 5th, 2009 Michael McDonough Comments off

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

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

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

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

Monday, Dec. 7

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

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

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

Tuesday, Dec. 8

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number declined -0.1% compared to no change a week prior.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 3.8% last week on a year over year basis.

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

Wednesday, Dec. 9

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

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

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increment of 2.1 million barrels versus a jump of 1.0 million barrels a week prior.

Thursday, Dec. 10

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

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

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

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

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

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

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

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet shrank last week to US$2.183trn from US$2.189trn.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Dec. 11

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

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

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

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

Enjoy the weekend!

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

October 24th, 2009 Michael McDonough Comments off

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

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

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

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

Monday, Oct. 26

8:30 a.m. EDT:  September’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding seven months and is expected to improve again in September from its reading of -0.9 in August.

10:30 a.m. EDT:  October’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction.  Last month’s survey suggested “factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal.”

Tuesday, Oct. 27

7:45 a.m. EDT: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly increment of 0.2% in store sales compared to a gain of 0.6% a week prior.

8:55 a.m. EDT: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were rose 0.5% last week on a year over year basis.

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

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

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

10:00 a.m. EDT:  Richmond Fed’s Survey of Manufacturing Activity (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, and should remain there this month based on what has been a strong new orders component.   According to the survey in August, manufacturing activity rose signaling a solid third quarter, while the new orders and employment components both experienced growth, and the price index slipped.

Wednesday, Oct. 28

7:00 a.m. EDT: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data declined 13.7% after falling 1.8% a week prior due to climbing interest rates.  The refinance index fell 16.8%, while the purchase index fell 7.6%. Refinances made up 65.0% of all applications last week.

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

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

10:30 a.m. EDT: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a rise of 1.3 million barrels versus an increment of 0.4 million barrels a week prior.

Thursday, Oct. 29

8:30 a.m. EDT: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 11K to 531K, after falling 10K a week prior. Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus forecast is expecting a pullback in this week’s initial claims data to 525K from 531K.

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

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

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

4:30 p.m. EDT: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet again declined last week to US$2.183trn from US$2.174trn a week prior.  The main catalyst behind the rise was an increase in the holdings of Treasury and mortgage bonds.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Oct.30

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

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

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

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

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

Enjoy the weekend!

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

October 10th, 2009 Michael McDonough Comments off

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

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

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

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

Monday October 12th:

Columbus Day Holiday

Tuesday October 13th:

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

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly increment of 0.3% in store sales compared to a gain of 0.1% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were down -1.9% last week on a year over year basis.

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

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

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

Wednesday October 14th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Last week’s data showed a jump of 16.0% on the back of lower mortgage rates.  The refinance index climbed 18%, while the purchase index rose 13%. Refinances made up 66.3% of all applications last week.

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

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

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

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

Thursday October 15th:

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

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

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

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

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

11:00AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of 1.0mn barrels versus an increment of 2.8mn barrels a week prior.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet again declined last week to US$2.120trn from US$2.123trn a week prior.  The main catalyst behind the drop was a decrease in central bank liquidity swaps as demand for US$ falls.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday October 16th:

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

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

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

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

Enjoy the weekend!

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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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