90 minutes before the opening bell sounds to begin a holiday-shortened week, equity futures are sharply upwards.
The Dow looks to open 52 points higher at 10,850 and futures on the S&P 500 are up 4.50 points to 1,168.00
Commodities are also on the rise with NYMEX crude oil contracts (May) up 67 cents to $80.00 per barrel and Gold up $5.70 to $1,111.10.
Data this week should be supportive of continued recovery in the economy, with the week likely ending on a highly positive note for employment. But investors will have plenty to consider after Treasury auctions saw a drawback in demand last week.
Key Events This Week:
8:30 ― Personal Income & Outlays should show modest consistent gains in income, decent growth in consumer spending, and tame inflation. According to economists, income should advance 0.1%, marking the seventh consecutive month of gains including 0.1% in January and 0.3% in December. Consumer spending is set to rise 0.3%, less than the 0.5% gain a month before but part of that gain was attributed to a sharp rise in gasoline prices. And core inflation should remain tame with a 0.1% gain, following a flat reading to start the year.
“Despite the continued dismal performance of the US labour market, consumer spending has risen in 8 of the last 9 months, boosted in large part by the stimulative monetary and fiscal policy environment,” noted Millan Mulraine of TD Securities. “We expect this positive momentum in spending to continue in February.”
His colleague Eric Lascelles added: “This report is less likely to get the bond market churning than the payrolls numbers that will close out the week . . . A negative income or spending figure would create some concern, but by an equal token a continuation of recent strength could help the short end of the bond market catch partially up to the move in the long end over the past week.”
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
9:00 ― In last month’s report for December the S&P Case-Shiller Home Price Index rose by a more-than-expected 0.3% to mark the seventh consecutive monthly price gain. But in January the index is set to fall 0.6%, reflecting weak demand despite low mortgage rates and tax incentives.
Recapping the December index, prices were down 3.1% compared to 12 months before, the slowest level of deflation since May 2007 (and versus a -5.3% decline one month before). Since the peak of home prices in mid-2006, prices in the index ― which track the value of residential real estate in 20 metropolitan regions ― were down 34.1%.
“At this point, the decline appears to reflect normal seasonal weakness, and perhaps some payback from the end of the first-time homebuyer tax credit,” noted economists from Nomura Global Economics. “However, given how detrimental a further decline in house prices would be for the economy and financial system, this trend bears close watching.”
10:00 ― After a 10-point decline in February, Consumer Confidence is expected to rise 4 points to 50.0 in March, economists say. With unemployment so high, real optimism seems dubious, but after big drops indexes tend to retrace a bit.
“Preliminary signs of an upturn in labor markets, along with further gains in stock prices, will be the main drivers of an expected strong bounce back from what looks like a rogue downshift in February,” said economists from IHS Global Insight. “Consumers are also reporting some improvement in personal finances. Reports of rising light vehicle sales in March are another indication that the consumer markets recovery is gaining momentum.”
In the broader outlook, former US labor secretary Robert Reich provided this commentary in the Financial Times last week:
“Optimists also point to rising stock prices that supposedly make consumers feel wealthier. But the net worth of most Americans is tied up in their homes, which are worth less than in 2007. The ‘wealth effect’ is relevant to the richest 10% of Americans whose net worth is mostly in stocks and bonds. The top 10% accounted for about half of total national income in 2007, but they represent only 40% of total spending. A sustainable recovery cannot be based on the top 10%.”
- 11:30 ― 4-Week Bills
8:15 ― With stock markets closed on Friday when the official employment numbers are released, markets may pay extra attention to the ADP Private Employment Report. Last month the index showed 20K jobs lost, the fewest in two years. And this month the report could very well jump into positive territory.
“Our forecasts for nonfarm payroll employment are consistent with a gain of approximately 100,000 in ADP private employment,” said economists from Nomura. “Although we usually downplay the value of this report, it may be more relevant this month given uncertainties about how the Northeast blizzards affected employment.”
9:45 ― Economists believe the Chicago Business Barometer, which has been on a pretty steady gain since December 2008, could see a pullback in March. The consensus is for it to dip from 62.6 to 61.0, but as everything over 50 reflects acceleration that isn’t anything to be disappointed in.
“The Chicago NAPM index is exceptionally high and looks set for a correction,” predict economists from Nomura. “We forecast a modest decline to 59.5 from 62.6, but see additional downside risks. The ‘supplier delivery time’ component should return to more normal levels.”
12:30 ― Dennis Lockhart, president of the Atlanta Federal Reserve, speaks on the economic outlook to a business leaders lunch in Hartford, Conn.
8:30 ― Initial Jobless Claims fell to 442k claims in the week ending March 20, bringing the month’s weekly average down to 450k, compared to 468k in February, 476k in January, and 474k in December. An average below 450k tends to indicate a growing labor market so further pullback could create optimism for Friday’s payrolls report (even though the monthly survey is cut off at mid-month).
“Jobless claims have moved sharply lower since their peak but remain somewhat high in level terms,” said economists from Nomura. “We think claims will need to decline further before job growth reaches trend-like levels. The total number of persons receiving jobless benefits ― through the 26-week program as well as via extended/emergency benefit programs ― appears to be leveling off. This is consistent with the notion that the unemployment rate has likely peaked."
10:00 ― One of the most important indexes gauging economic growth is the nationwide ISM Manufacturing Index, which is set to continue accelerating in March. Economists expect the index to see a 56.1 score, well into growth mode but slightly below the 56.5 level in February or the 58.4 in January. The index has been positive for the past seven months, reflecting broad growth ― but economists often point out it gives disproportionate influence to large firms.
“February’s increase in durable goods orders, which was widespread across most components, could translate into greater manufacturing activity and an increase in the ISM,” said economists from BBVA. “The manufacturing sector has been leading the economic recovery and the resumption in industrial production. A higher ISM in March would support our expectation of an increase in industrial production, as well as in manufacturing employment in Friday’s non-farm payrolls report.”
10:00 ― After Construction Spending slipped 1.2% in December and 0.6% in January, a further 1.1% decline is expected in February. Economists have noted that despite the stimulus package, spending on public construction has been contracting at a rapid pace.
“Construction spending is weak across the board,” said economists from IHS Global Insight, projecting a 1.6% monthly decline. “In January, single-family construction fell for the first time in eight months. Public construction spending (down six straight months), nonresidential construction (down ten straight months) and multifamily construction (also down ten straight) are faring worse. We are expecting another bad reading for February, made worse by the snowstorms.”
(Stock markets closed; fixed income markets open)
8:30 ― After months of waiting for the Employment Situation / Nonfarm Payrolls report to indicate labor growth in the economy, it looks like it will finally happen … on a day when equity markets are closed.
The consensus is to see that a whopping 200,000 net jobs were created in the month, versus a net loss of 36k in February. No economists look for a decline as the range of predictions is from 75k to 300k. However, the unemployment rate isn’t set to budge from 9.7%, and the expected job gains certainly don't reflect broad growth.
Rather, as analysts from BBVA point out, 150k of the jobs reflect temporary hiring for the census report. Meantime, the manufacturing sector “will add jobs for the third consecutive month in order to satisfy the increase in demand.”
Economists from IHS Global Insight say weather could throw a curveball in the report. “Nobody knows how big the weather losses were, but they were probably at least 50,000. Stripping out Census and weather effects, we would expect a small, but still positive, change in underlying employment, which would be good news – just not as good as the headline 200,000 figure would suggest.”