Uncertainty remains as to whether Greece will resolve its debt issues, but markets around the globe were mostly higher Tuesday and the euro recovered slightly from its earlier beatings. In the US, equity futures are pointing higher following the long weekend.
One hour before the opening bell, Dow futures are up 28 points to 10,145 while the S&P 500 looks to open 4.30 points higher at 1,083.40. Last week the Dow and the S&P 500 each saw a gain of 0.9% ― for the latter it was the first weekly advance in more than a month.
In recent news regarding Greece, Jean-Claude Juncker, who heads the Eurogroup of eurozone finance ministers, said Greece would have to cut its budget deficit if it wants to avoid sanctions. Juncker said Germany and others aren’t prepared to pay for Greece’s mistakes, a statement borne out by a poll from the German newspaper Bild am Sonntag, which found that 53% of Germans want Greece to be expelled from the euro, if necessary, in the coming months. Two-thirds were strongly against any German money being used to bail-out, the paper said.
Media outlets report that the European Union is asking Greece to draw up a plan to deal with the deficit in the next month, but in return a bailout package has yet to be publicly announced.
Key Events This Week:
Tuesday:
8:30 ― The Empire State Manufacturing Index will be the first regional manufacturing index to be released in February. Economists are looking for it to show a score 18 points above the growth threshold, versus 16 in January. Forecasts are based in part on the New Orders component in January, which at 20 suggested broad growth in production.
“After declining for fifteen straight months, manufacturing activity in the New York Fed’s territory has been expanding for the past six months according to the Empire State Manufacturing Index,” said analysts at BBVA. “The index is expected to climb to 18.7 in February, indicating the recovery in manufacturing is continuing into 2010. Given this result, we could expect to see a rise in February’s ISM Manufacturing Index as well.”
9:00 ― The last Treasury International Capital report for November suggested that international demand for US financial products was more robust than anyone was expecting. One economist said “the Street was blown away” by the report, which showed the private sector purchasing $87.1 billion of Treasuries compared with just $23.9 billion in October.
This month isn’t likely to see a repeat, say economists from Nomura, pointing out that November “was the first month since June 2008 in which foreign official institutions ― central banks and other government entities ― were net purchasers of US agency securities. However, the Fed's custody holdings statistics suggest that this was not the beginning of a sustained trend. We therefore expect that net inflows into agencies were close to zero in December.”
1:00 ― The Housing Market Index from the National Association of Home Builders tracks confidence levels for the construction of single-family residential homes. With a large overhang of inventory and high unemployment, it should be no surprise that confidence is still painfully low even if it’s several points above historic lows seen last year. The survey has fallen a point in each of the past four months and now sits at 15, the lowest level since June.
“Another disappointing showing in February would confirm that the housing recovery is likely to remain fragile until employment growth resumes,” said analysts from BMO Capital Markets.
12:45 ― Narayana Kocherlakota, president of the Minneapolis Federal Reserve, speaks to the Minnesota Bankers Association in St. Paul.
- Treasury Auction:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
Wednesday:
8:30 ― Housing Starts are expected to start the new decade with sales moving up from a pace of 557k to 580k. In the prior month sales dropped 4.0%, erasing some of the 10.7% advance in November.
“Housing starts in the previous month of December took a hit, in part because of unusually cold and wet weather, so we expect a bounce back in January,” said analysts from IHS Global Insight, who noted that while “builders remain pessimistic ... they are nonetheless ramping up production.”
Taking a longer view, Ellen Zentner from BTMU adds that, “thanks to the low level of inventories, builders will be playing ‘catch-up’ for most of 2010 and therefore we expect housing starts to rise by about 33% over the year.” She also said that expected improvement in the job market this spring “will help propel the housing recovery as we head into the prime home buying season.”
9:15 ― Expect Industrial Production to be strong in January, marking the seventh straight month of growth. The consensus looks for a 0.8% advance following the healthy 0.6% gains in the prior two months. Forecasts range from +0.4% to 1.0%. The optimism in based on previous reports in addition to anecdotal evidence from regional manufacturing reports as well as the nationwide ISM index.
“Production levels are forecasted to post a year-over-year increase for the first time since March 2008,” note economists from BBVA. “The additional increase in activity could indicate that demand is continuing to pick-up early in 2010. In particular, industrial production of high tech goods is expected to post its second consecutive year-over-year increase, which would point to further recovery in non-residential investment in equipment and software in 1Q10.”
2:00 ― Since the last FOMC meeting, Fed chairman Ben Bernanke gave a significant speech on the central bank’s planned exit strategy, which means analysis of the prior FOMC meeting may not be too important. Still, the FOMC Minutes may give new insight to the bank’s economic and policy outlooks, and analysts will looking for any comments related to the Fed’s purchases of mortgage-backed securities.
“Comments should generally be more upbeat given the modest upgrade in the description of activity in the FOMC statement,” write analysts from Nomura. “We expect officials to note the above-trend growth rate in Q4, the improvement in capital goods investment, and a further easing of financial conditions.”
Economists from BBVA added: “Although the economy continues to improve, significant slack remains, which will warrant maintaining the current target fed funds rate and the ‘extended period of time’ language.”
Thursday:
8:30 ― The Producer Price Index is expected to see a rapid 0.8% climb in January based on oil prices. Once energy and food prices are stripped of the equation however, the advance is supposed to be just 0.1%, providing further support that inflation should remain on the policy back burner. In the prior month the headline index rose 0.2% while the core index was flat.
“After a quiet December, the index is projected to surge as gasoline and fuel oil prices rose more than 10% during the first month of the year,” said economists at IHS Global Insight. “Markedly colder weather across much of the southern U.S. should push fruit prices higher, pulling food prices up again . . . Weak wage and salary increases, combined with low capacity utilization rates are keeping a lid on core finished goods prices.”
8:30 ― Initial Jobless Claims have been particularly volatile of late. Last week the index dropped 43k to 440k, leading the four-week average to fall for the first time in a month. Economists have few tools to predict the weekly numbers, and given recent volatility it shouldn’t be surprising the consensus is simply flat at 440. Forecasts range from 410k to 450k.
Analysts from Nomura note that last week's decline reflected the conclusion of a filing backlog that had built up over the holiday season. "We expect that claims will hold at this level or decline slightly now that this distortion has passed," they added.
10:00 ― The Leading Indicators Index, a composite that attempts to track turning points in the economy, has now been growing for nine consecutive months. The December index even saw a 1.1% gain ― its fastest growth spurt in more than four years. For January, the index is expected to see a more temperate 0.5% advance.
“This month's advance should be led by: longer average working hours in the manufacturing sector; a higher vendors' performance index; and a steep yield curve. These factors should be partly offset by a rise in initial jobless claims,” said analysts from Nomura Global Economics.
10:00 ― Like its cousin survey in New York, the Philadelphia Fed Survey is expected to be in clear growth mode in February, improving slightly from levels seen in the first month of the year. The +17.0 prediction seems too optimistic compared with the New Orders component last month though, which was just +3.2.
In line with that thinking, economists from Nomura expect the index to drop 5.2 points to 10.0. “Heavy storms battered the region during the survey period and led to the temporary shutdown of many businesses,” they note. “Manufacturers in the area likely temporarily trimmed production.”
11:00 ― The Treasury Department announces the terms of next week's 2 year, 5 year, 7 year, 30 year TIPS debt auctions.
5:00 ― Elizabeth Duke, governor of the Federal Reserve, speaks to the annual Economic Impact Award in Norfolk, Va.
Friday:
8:30 ― The Consumer Price Index is expected to show a headline gain of 0.3% in January and a core gain of 0.1%, reflecting a rise in oil prices but a pretty steady pace for prices at the retail level. The prior month recorded a 0.1% gain on both fronts.
“High unemployment is keeping a lid on wage gains and consumer demand, limiting the rise of core services prices,” said analysts at IHS Global Insight.
Analysts from BMO similarly noted: “Subdued inflation, enormous slack and a still-fragile recovery are the main reasons the Fed expects to keep rates steady for an ‘extended period,’ likely until September.”
