Treasuries are firmer and U.S. equities are mixed following the the Group of 20 finance ministers weekend meeting in Paris. European bourses has been rallying hard but then paced slower once German chancellor Angela Merkel let it be known that much work still had to be done to resolve the European debt crisis.

"Dreams ... that with this package everything will be solved and everything will be over on Monday won't be able to be fulfilled," said Merkel's spokesman, according to Bloomberg.

Treasuries are steady on the short-end but firmer through the rest of the curve. The benchmark 10-year rate is two basis points down at 2.23% and the 30-year yield is marginally lower at 3.23%, while the two-year remains at 0.27%.

Equity futures are mixed following a 6% rally last week - the best week in more than two years. S&P 500 futures are up 0.02% at 1,219.50, but Dow futures are 26 points lower at 11,540.

Global equities have a much clearer direction, even after the rally fizzled out. In Asia, shares in Hong Kong and Japan rose 2.01% and 1.50%, while Chinese stocks rose 0.37%. In Europe, the FTSE 100 is up 0.45% and the CAC-40 is 0.25% higher.

Among commodities, light crude oil is 0.15% lower at $86.67 per barrel, while gold prices are off 0.4% at $1,682.60 per ounce.

As the Q3 earnings period continues, investors await results from Citigroup and Wells Fargo today, with Bank of America reporting tomorrow.

Key Events This Week:


8:30 - The Empire State Manufacturing Survey has deteriorated for the past two months. September's headline, at -8.8, had some commentators speaking of stagflation as the prices paid component jumped to +32.6. This month, the headline is expected at -4.

"Financial market volatility remained high in early October so we are looking for continued weakness in the regional manufacturing surveys, though better levels when compared to August and September," said Nomura Global Economics. 

9:15 - Industrial Production is anticipated to tick up 0.2% in September, following a 0.2% gain in August and a 0.9% jump in July. The September gain was led by a 0.5% climb in manufacturing, offset by a 3% dip in utility output. More weather-related weakness in utilities should tame the headline this month, but 13,000 manufacturing jobs were lost, so the make-up of the expected 0.2% gain is quite different than in August.

"The drags will be lower electricity output after two hotter-than-normal summer months, and lost oil and gas production from hurricane shutdowns," said IHS Global Insight. "On the manufacturing side, vehicle production should be flat after a big jump in August, and core manufacturing may inch higher in a mediocre climate. Underneath the crosscurrents, the bulk of manufacturing is just drifting, moving sideways to slightly higher - but not tipping into recession."

Janney Capital Markets added: "The strength of the manufacturing industry through the now-stalled economic recovery was quite impressive, though there's some evidence that, as broader economic conditions deteriorated, that factory output likewise slowed."

7:30pm - Jeffrey Lacker, president of the Richmond Fed, speaks at the Salisbury-Wicomico Economic Development Annual Meeting on the economic outlook

8:00pm - Charles Evans, president of the Chicago Fed, speaks on monetary policy and the economic outlook to the Michigan Economic Summit.


  • Treasury Auctions:
  • 11:30 - 3-Month Bills 
  • 11:30 - 6-Month Bills



8:30 - Economists expect the Producer Price Index to move up 0.2% in September, following a flat reading in August and a 0.2% gain in July. Core prices, which exclude oil and food components, are expected to grow 0.1%, the same as in August and well below the 0.4% jump in July.

"Gasoline prices should be sharply higher - recent declines came too late to pull down the September price index," said IHS Global Insight. "Food prices are expected to ease back after three sharp monthly increases in succession. We expect core finished goods prices to be flat, held down in part by vehicles prices as manufacturers become more aggressive at discounting."

Citigroup expects a 0.3% jump in headline prices but said the general trend is towards softer wholesale prices in coming months. 

"Crude petroleum prices have fallen sharply, first on WTI and now even Brent seems to be headed lower," Citi said. "In addition, many non-energy commodity prices have fallen sharply recently."

10:00 - Builder sentiment remains exceedingly low, according to the Housing Market Index, which fell to 14 in September. Economists expect the index to inch forward to 15 this month, but until there is a sustained rise these monthly fluctuations can be ignored. An optimistic reading is anything above 50. We've got a long way to go.

"Housing activity remains depressed as builders cite credit conditions and price competition from distressed sales as an impediment to new home buying," said Nomura Global Economics.

1:15 - Fed Chairman Ben Bernanke speaks to the Boston Fed Bank conference on the long term effects of the great recession.


  • Treasury Auctions:
  • 11:30 - 4-Week Bills
  • 11:30 - 52-Week Bills



8:30 - The Consumer Price Index increased to a year-over-year rate of 2% in September. Monthly prices have recently inflated 0.4% and 0.5% on rising food, gas, and rent prices. This month CPI should grow 0.3%; core prices, which strip out food and gas prices, should expand by 0.2% for the third month. That would leave the year-over-year headline rate at 2.1%, enough to get hawks at the Fed concerned about quantitative easing.

"Firms have managed to hike prices in many cases despite anemic consumer demand," said Janney Capital Markets. "The story here is, in our view, one of tight capacity in many industries. As firms cut back on production ability when times were tight in 2008- 2009, they generated a greater ability to control pricing when conditions stabilized, as was the case post-2009. That pricing power has been partially responsible for deflation not taking hold in the US economy over the ensuing eighteen months; the Fed's quantitative easing programs deserve credit for the balance."

Citigroup said CPI should by led higher by another jump in energy costs, but core price should be tame.

"Apparel prices have soared in the four months to August at the fasted pace in the post-WWII era," they added. "The 5% cumulative rise (not annualized) followed nearly a decade of stagnant prices. Given the lack of demand and tremendous slack in the economy, we have a hard time trusting that this is a new trend. Seasonal factors look for more than a 4% rise in prices in September. We think the price increase will fall short of seasonals, especially starting from such elevated levels, yielding a decline in apparel prices this month."

8:30 - Recent permit figures and post-Hurricane Irene rebuilding needs should contribute to higher Housing Starts in September. The annualized pace of new construction should improve to 595k, up from 571k in August but still below the 601k level registered in July.

"Housing starts likely remained in the tight range in place since the end of the recession," said Citigroup. "Single-family housing construction has been especially weak during this period, while multifamily housing shows some signs of a rebound ... Multi-unit starts are probably being spurred by the falling rental vacancy rate and the corresponding rise in rent prices."

IHS Global Insight also anticipated improvement, but say that permits will probably slip  because the economy is struggling.

"The key number to watch in this report will be single-family permits, which have gradually improved from a low point of 382,000 in February to 418,000 in August," they said. "A strong increase - which we are not expecting - would point to a long-awaited recovery in housing construction."

8:30 - Eric Rosengren, president of the Boston Fed, speaks at the Boston Fed's conference on the long term effects of the great recession.

2:00 - Hopes are modest for the Federal Reserve's Beige Book, an anecdotal summary of economic conditions compiled by the 12 regional Reserve banks. In the last report on September 7, seven banks described local conditions as "very subdued," "slow" or "sluggish," while just five reported "modest" or "slight" growth. Labor markets were stable, stock market volatility was blamed for causing uncertainty, and retail sales were mixed. 

"The tone of the report," said Nomura Global Economics, "should be less pessimistic compared to the FOMC statement and minutes from the September meeting because it will reflect the more positive data on the economy that has come in since that time. Still, we expect anecdotes of firms exhibiting restraint - in both hiring and capital investment - to also crop up in a labor market whose outlook has dimmed."


8:30 - The four-week average of Initial Jobless Claims fell 7,000 to 408,000 in the last report. This week, economists predict 400k claims. 

The downward trend appears to have resumed following technical adjustment problems that were "exacerbated by the backlog of claims filings following the arrival of Hurricane Irene in early September," said Nomura Global Economics.

Citigroup notes the four-week moving average could drop to a six-month low. 

"The more than 20,000 person decline in the average from the same period in September suggests some thawing in the labor market," they said. "Claims were particularly elevated in September reflecting a number of special factors, but also general softening in the economy. The continued improvement in filings supports our expectation of faster 2H growth."

10:00 - Despite falling home prices and stimulative mortgage rates, Existing Home Sales are anticipated to fall to an annualized pace of 4.90 million units in September, down from 5.03 million a month before.

"Although mortgage rates have fallen to a historic low below 4% on 30-year fixed loans, and the housing affordability index remains near record highs, these are not the driving factors for housing at this time," said Citigroup. "Mortgage credit availability remains tight and potential buyers are now expected to amass larger down payments, which takes time."

The view is backed by recent data, as noted by IHS Global Insight. "Mortgage applications to buy homes dropped in both August and September, pointing to a drop in existing home sales in September," they said. "The Pending Home Sales Index, which slipped 1.2% in August, also points to a September sales decline."

10:00 - The Philadelphia Fed Index is expected to improve overall but remain in economic contraction for the third straight month. Economists peg the index at -9.9, compared with a weak -17.5 in September and a recessionary -30.7 in August.

"The Philly Fed index has been all over the map this year and not very reflective of economic activity," said Citigroup. "At the start of spring, the index jumped to the highest reading in a quarter century, only to plunge to one of its lowest readings by mid-summer. The economy and other measures of activity exhibit none of these extremes. So, while we expect the Philly measure to settle down to levels consistent with ongoing modest growth in coming months, we take this business gauge with a grain of salt."

10:00 - The Leading Economic Indicators index, a composite gauge that attempts to measure turning points in the economy, should grow by 0.3% in September following prior gains of 0.4% and 0.6%.

"Once again the majority of the gain will come from the yield curve and real money supply components, but higher consumer expectations and better vendor deliveries will also contribute to growth," said Nomura Global Economics.

10:15 - James Bullard, president of the St. Louis Fed, gives opening remarks at the Fall Research Policy Conference in St. Louis.

8:00pm - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to Minnesota Council on Economic Education in Minneapolis.


1:00 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to the Harvard Club of Minnesota in Minneapolis.