US Week Ahead: To Buy Or Not To Buy

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

Monday August 24^th:

8:30AM: Chicago Fed National Activity Index (CFNAI-MA3) (Risk: Downward, Market Reaction: Marginal): The CFNAI is an index that consists of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index the three month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading.  This index has shown improvements over the preceding five months, and is expected to improve again in July from its reading of -2.1 in June.

Tuesday August 25^th:

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

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

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

10:00AM: The Federal Housing Finance Agency (FHFA) House Price Index (Risk: Neutral, Market Reaction: Significant): The Federal Housing Finance Agency (FHFA) House Price Index (HPI) is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s.  Investor’s will be focusing on the June purchase only index, which in May experienced a monthly gain of 0.9%, compared to a decline of -0.3% in April.  On a yearly basis the HPI was down 5.6% in May.  The monthly index tends to be relatively volatile, but should continue to trend up over the coming months with the Case-Shiller home price index. 

Wednesday August 26^th:

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

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

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

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

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

Thursday August 27^th:

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

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

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

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

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

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

Friday August 28^th:

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

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

Enjoy the weekend!