Equities are mixed around the globe but clearly downward in the US. Following a 3-day weekend, one hour before the opening bell, Dow futures are off 28 points to 10,535 and S&P 500 futures are down 4.00 points to 1128.30.
Commodities are also weaker with WTI Crude oil down 64 cents to $77.36 per barrel and Gold down 3.30 cents to $1130.40.
The week ahead is relatively light on data but financial markets will be active as the Q4 earnings season speeds up.
Kicking off Tuesday is the earnings report from Citigroup. Wednesday will see results from rivals Morgan Stanley, Bank of America, and Wells Fargo. Thursday will see Goldman Sachs.
Economists from BMO Capital Markets note that equity investors “have reacted negatively to recent reports and appear to have set a high bar for further near-term advances, awaiting clearer signs of a sustained economic recovery and declining consumer delinquencies.”
9:00 ― In October the Treasury’s International Capital report indicated that capital flows fell 49% in the month to $20.7 billion from $40.7 billion. The report showed foreign appetite for Treasuries softening and private sector purchases declining.
Analysts from Nomura Global Economics expect to see the following trends: 1) steady net purchases of long-term Treasury securities; 2) net selling of agencies, especially by foreign official accounts; 3) strengthening net purchases of corporate equities; and 4) stagnant demand for corporate bonds (including private-label structured products).
1:00 ― Analysts are looking for the National Association of Home Builder's Housing Market Index to remain at 16 in January, far below the historical average of 51 and deeply pessimistic overall.
“Such a low level of the index indicates that builders still believe that housing demand is weak. As a result, residential investment could remain low early in 2010,” said analysts from BBVA.
Jennifer Lee from BMO adds: “Don’t be too shocked to see the diffusion index falter for the second straight month, although it is some distance away from last year’s single-digit record lows. Nonetheless, the recent bout weakness seen in new home sales likely took the wind out of homebuilders’ sails at year-end.”
- Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
8:30 ― Housing Starts are expected to inch up to an annual pace of 579k in December. The past two months have been volatile; in November the pace jumped 8.9% ― including a 67% sprint in multifamily units ― but had fallen 10.1% the prior month. Analysts are pointing to the extension of the government tax incentive as a reason why a positive number should be seen to close the year.
“A swing in weather patterns, once again, will play the pivotal role in the housing starts numbers,” said economists from IHS Global Insight, noting that November was “the third-warmest and 18th-driest November in 115 years,” which means “some homes that would have been started in December were instead started in November.”
They added that building permits are a better indicator of underlying trends and should rise to a pace of 599,000.
8:30 ― The Producer Price Index is expected to be tame in December. The headline index is set to remain flat after soaring 1.8% in November due to volatile energy prices, which moved up 6.8%, as well as food costs, which gained half a percentage point. The core index, which excludes energy and food prices, is anticipated to rise 0.1% after a 0.5% uptick. Markets gives more attention to consumer prices and they were already released last week, so it’s unlikely the numbers will rock the markets.
“Although wages, a producer’s primary cost, are no longer declining, they remain low,” said analysts from BBVA. “Additionally, the cost of intermediate materials is still below that of the previous year. Low cost of inputs, coupled with weak demand, will incentivize producers to keep prices steady.”
- Treasury Auctions:
- 11:30 ― 4-Week Bills
8:30 ― Initial Jobless Claims rose 11k last week but the downward trend remains clear. For the week ending January 16 analysts are looking for the weekly figure to fall 4k to 440,000, in line with the 4-week average. Economists generally believe a sustainable pace below 400k is consistent with monthly job creation.
“The near-continuous decline in the four-week moving average since April 2009 is a strong signal that the worst of the recession in the labor market has passed,” write economists from Nomura, adding this cautious note: “However, meaningful private sector job growth hinges on a pick-up in hiring activity, and to date there is little evidence that most firms are ready to add staff.”
10:00 ― The Leading Economic Indicators is designed to track turning points in the economy. In November the composite climbed 0.9% and to end the year economists are looking for a robust 0.7% figure, the ninth straight gain. Strength has been broad, stemming from a steep yield curve, falling jobless claims, an advance in building permits, and gains in the stock market.
“Positive contributions are anticipated to come from the S&P 500, initial jobless claims, consumer expectations and average weekly hours,” predict analysts from BBVA. “Furthermore, build permits are forecasted to post a modest increase, which will boost the index as well.”
10:00 ― Manufacturing conditions in the Philly Fed region is expected to improve in January but not by the same pace seen in December. Expectations range from +5.6 to +21.5 with the consensus at +18.0, two point below the November level. Some investors must have hope for a positive surprise though after the New York Empire State survey was significantly stronger than forecasts last week.
“The Philly Fed index has now had a healthy streak of increases and we expect a temporary correction this month,” said analysts from Nomura. “However, we expect the index to remain above the expansion/contraction threshold [that is, zero].”
No data released.