The Week Ahead: U.S. PPI and Retail Sales
Traders expect U.S. bonds to potentially move lower with very little data for markets to digest next week. The main data releases in North America are expected later on in the week with the issuance of U.S. PPI, retail sales and the University of Michigan/Reuters consumer sentiment figures.
In secondary data, markets will receive U.S. pending home sales and the trade balance. It's a lighter week in Canadian markets, which will receive building permits and international merchandise trade.
Gian Espejo, senior dealer at GCI Financial Ltd, said U.S. PPI and retail sales reports will be important heading into the FOMC meeting on September 16. He added markets will be looking at more than next week's data.
"Outside of data, traders will look for more fallout from the credit market crisis including a possible U.S. de facto nationalization of Fannie Mae and Freddie," he said.
Aside from the PPI and retail sales data, Guy Lebas from Janney Montgomery Scott, said he will also be paying attention to the U.S. trade data. He said he expects the deficit to widen as global growth continues to slow and the U.S. dollar strengthens.
"Realistically foreign demand isn't that strong but they have been buying like crazy and we think that is going to end," he said.
Michael Franzese, head of government bond trading at Standard Chartered, said after Friday's nonfarm payrolls, it is clear that the Fed is on hold, and he is expecting bonds to move lower.
"I think that right now everything is overvalued," he said "People are betting that the economy will weaken and push the Fed funds to 1.00%, but we still have positive growth."
Don Ellenberger, senior portfolio manager at Federated Investors, agreed that bonds could move lower next week ahead of the major data. He added, however, that the markets right now are less driven by the data, which is adding to the volatility.
"With the two-year treasury yields at 2.2% it is hard to argue that there is a great deal of value in short treasuries unless you are convinced that the Fed's next move is to ease," he said. "We think the Fed is on hold well into next year. We think these levels are reasonable and are appropriate for a Fed-on-hold scenario and we aren't expecting a continuation in the rally next week."
"The market in the first part of the week won't be driven by the data. I think the bond market is going to be more focused on equities. If the equity market continues to trade off you will see a flight to quality," he added.
Looking at currency markets, Tyson Wright, senior trader at Custom House, said he doesn't expect to see a lot of big moves in the U.S. dollar. He added, however, that after the U.S. payrolls report, it is clear that the economy is in a recession, but the market isn't taking that into consideration.
"I'm not sure the U.S. dollar can continue this torrid pace but it will remain strong," He said. "On balance, the euro will struggle to make any gains."
Wright pointed out that markets are continuing to price in more weakness in Europe than the U.S., and any rally in the euro would be limited because traders would take that opportunity to buy more U.S. dollars.
All times in EDT
The week starts with the release of Canadian building permits, which are expected to continue to decline. The consensus is calling for permits to fall 0.5% following a 5.3% drop in June.
In the U.S., markets will be interested in what Dallas Fed president Richard Fisher has to say when he speaks in Austin, Texas.
8:30 CA Building Permits (M/M) July Exp: -0.5% Prior: -5.3%
11:30 US Treasury to Sell $20B 6-Day Cash Management Bills
13:00 US Fed's Fisher Speaks in Austin at Community Forum
13:00 US Treasury to Sell $26B 3-Month Bills
13:00 US Treasury to Sell $25B 6-Month Bills
15:00 US Consumer Credit July $8.6B Prior: $14.3B
Markets will receive more Canadian housing data with the release of August housing starts. Economists expect housing starts to rise to 190,000, up from 186,500 starts in July.
In the U.S., markets will receive the first consumer sentiment survey of the month with the release of the IBD/TIPP economic optimism index for September, which is expected to show a reading of 44.0 following last month's level of 42.8. Fed Chairman Ben Bernanke will speak on education at an event in Washington.
8:15 CA Housing Starts August Exp: 190.0K Prior: 186.5K
9:00 US Bernanke Speaks on Education in Washington
10:00 US Pending Home Sales (M/M) July Exp: -1.3% Prior: +5.3%
10:00 US IBD/TIPP Economic Optimism September Exp: 44.0 Prior: 42.8
10:00 US Wholesale Inventories July +0.7% Prior: +1.1%
13:00 US U.S. to Sell 4-Week Bills
17:00 US ABC Consumer Confidence W/E September 7 Prior: -47
September 9 US DOE Short-Term Crude Outlook September Prior: +124K
September 9 US DOE Short-Term Ht Oil Outlook September Prior: +4.18K
September 9 US DOE Short-Term Diesel Outlook September Prior: +4.27K
September 9 US DOE Short-Term Mogas Outlook September Prior: +3.82K
September 9 US DOE Short-Term NatGas Outlook September
Labour productivity for the second-quarter will be released, which is expected to rise 0.3% following the previous fall of 0.3%.
7:00 US MBA Mortgage Applications W/E September 5 Prior: +7.5%
8:30 CA Labour Productivity (Q/Q) Q2 Exp: +0.3% Prior: -0.3%
10:35 US DOE U.S. Crude Oil Inventories W/E September 5 Prior: -1898K
10:35 US DOE U.S. Gasoline Inventories W/E September 5 Prior: -1037K
10:35 US DOE U.S. Distillate Inventory W/E September 5 Prior: -413K
10:35 US DOE U.S. Refinery Utilization W/E September 5 Prior: +1.4%
The week starts to pick up with the release of U.S. and Canadian trade data. The U.S. trade balance is expected to show a deficit of $58.0 billion, following June's deficit of $56.8 billion. In Canada, international merchandise trade is expected to show a surplus of C$5.7 billion following June's surplus of C$5.8 billion.
The U.S. federal government will also release its monthly budget statement for August, which is expected to show a deficit of $105.0 billion following July's deficit of $117.0 billion.
8:30 CA New Housing Price Index (M/M) July Prior: +0.1%
8:30 CA International Merchandise Trade July Exp: C$5.7B Prior: C$5.8B
8:30 US Trade Balance July Exp: -$58.0B Prior: -$56.8B
8:30 US Import Price Index (M/M) August Exp: -1.5% Prior: +1.7%
8:30 US Import Price Index (Y/Y) August Exp: +20.2% Prior: +21.6%
8:30 US Initial Jobless Claims W/E September 6 Exp: +440K Prior: +444K
8:30 US Continuing Claims W/E August 30 Exp: +3440 Prior: 3435K
10:30 US EIA Natural Gas Storage Change W/E September 5
13:00 US Treasury to Sell 10-Year Notes; Reopening
14:00 US Monthly Budget Statement August Exp: -$105.0B Prior: -$117.0B
14:45 US Fed's Kohn Comments on Financial Regulation at Brookings
The week ends with the release of U.S. PPI, retail sales and the preliminary print of the U of M/Reuters consumer confidence index.
According to traders, markets will be focused on inflation data ahead of the FOMC meeting on September 16. August's annualized core PPI is expected rise 3.7% following July's increase of 3.5%. Headline PPI is also expected to rise to 10.2% following July's increase of 9.8%.
U.S. retail sales excluding autos is expected to fall 0.2% following July's rise of 0.4%.
Finally, the University of Michigan/Reuters consumer sentiment index for September is expected to tick higher to a reading of 64.0 following July's 63.0 level.
8:30 CA Capacity Utilization Rate Q2 Exp: +79.5% Prior: +79.8%
8:30 US Producer Price Index (M/M) August Exp: -0.5% Prior: +1.2%
8:30 US PPI Ex Food & Energy (M/M) August Exp: +0.2% Prior: +0.7%
8:30 US Producer Price Index (Y/Y) August Exp: +10.2% Prior: +9.8%
8:30 US PPI Ex Food & Energy (Y/Y) August Exp: +3.7% Prior: +3.5%
8:30 US Advance Retail Sales August Exp: 0.3% Prior: -0.1%
8:30 US Retail Sales Less Autos August Exp: -0.2% Prior: +0.4%
10:00 US University of Michigan/Reuters Confidence September Preliminary Exp: 64.0 Prior: 63.0
10:00 US Business Inventories July Exp: 0.5% Prior: 0.7%
By Neils Christensen and edited by Sarah Sussman
©CEP News Ltd. 2008