The week begins with a bang but ends with a whimper. A storm of data hits markets on Monday with retail sales an hour before the opening bell, plus the first look at November manufacturing and business inventories. To top off the day, Fed chairman Ben Bernanke gives a talk during the lunch hour a little after dual Treasury auctions.
Later in the week markets will be looking at inflation indexes, housing construction data, the usual weekly labor report, and leading indicators. Friday ends the week with no data at all.
The week is sure to be a busy one. Even before the opening bell sentiment is high after the Japanese economy climbed a healthy annualized rate of 4.8% in the third quarter, about two percentage points better than expected incline due to robust consumer spending and improving exports.
That’s helping to buoy markets across the globe, led by a 2.74% jump in Shanghai and a 1.73% gain in Hong Kong. Two hours before the open Dow futures are pointing up 65 points to 10,307 and S&P 500 futures up almost 9 points to 1,102.
Gold reached new highs again at $1,030 per troy ounce overnight but now trade at $1128.77. In not unrelated news, the US dollar is weaker after a surprise uptick late last week.
Is Monday morning too early for irony? China and the US are once again talking about currency reform, but this time it’s not about the renminbi. Liu Mingkang, chief of China’s Banking Regulatory Commission, said US monetary policy was encouraging speculative capital flows.
“The continuous depreciation in the dollar, and the US government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12-18 months, has led to massive dollar arbitrage speculation,” Liu said.
Even so, appetite for Treasuries remains robust: the 10-year yield is down a few basis points to 3.40%.
Key Events This Week:
Monday:
8:30 ― Following a 1.5% pullback in September, Retail Sales are expected to resume growth at +0.9% in October. The prior month’s dip was largely driven by a decline in auto sales after consumers had emptied their pockets during the government’s cash-for-clunkers program in late summer. October sales are expected to be decent, but led by new auto sales and rising gas prices rather than, say, increased wages.
“Auto sales were reported to have increased +13.6 percent, reaching the highest level since November 2008 – barring the incentive-fueled months of July and August,” said Ellen Zentner, macroeconomist at BTMU.
“The only downside risk to October sales is the fact that even though the year-over-year performance for same- store sales was very strong, BTMU’s seasonally adjusted month-to-month index showed that same store sales were fairly flat in October,” Zentner added.
8:30 ― The first look at manufacturing in November is expected to be thriving. The Empire State Manufacturing index is set to see a +29.0 reading, with Wall Street forecasts ranging from 26.0 to 35.0. The median estimate is below the 35.6 level in October but still well above mere stabilization. Predictions are largely based on the prior month’s new orders component (+30.82), which pointed to a fourth straight month of growth.
10:00 ― Business Inventories won’t stop falling. The oft-repeated line that the more inventories are slashed, the quicker they will rebound, is becoming less comforting at inventories continue to be scaled back month after month, including 1.5% in August, 1.1% in July, and 2.3% in August. For September, the Street expects inventories to fall by 0.8%.
12:00 ― Ben Bernanke, chairman of the Federal Reserve, speaks to the Economic Club of New York.
“With the jobless rate in double digits, expect the same dovish remarks made by virtually every other Fed official in the past two weeks,” said Sal Guatieri from BMO Capital Markets. “Although the recovery is progressing, the outlook for growth and inflation remains subdued, suggesting rates can stay fixed for an “extended period.”
- Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
Tuesday:
8:30 ― The Producer Price Index isn’t likely to gain much attention. Inflation remains on the back-burner and those who are interested prefer to track consumer prices which come out just a day later. The consensus from economists is for prices to rise 0.5% in October, which would seem alarming if prices hadn’t fallen 0.6% in September. Similarly, core prices are set to rise 0.1%, mitigating the 0.1% drop in the prior month.
9:00 ― TIC Flows, the Treasury’s look at the flow of financial instruments to and from the United States, is released for September. Analysts will be looking for how international appetite is holding up for Treasuries, equities, and corporate bonds.
9:15 ― Industrial Production is set to rise for the third consecutive month in October. In the manufacturing sector, production is up and new jobs could soon be a reality.
“Hours worked in manufacturing fell by 0.4% in October, but we anticipate another large gain in manufacturing productivity; output per hour in manufacturing zoomed at a 13.6% annual rate in the third quarter, climbing at a 21.2% annual rate in durables,” said economists from IHS Global Insight. They add that utility output should be boosted by abnormally cold fall weather.
10:00 ― Jeffrey Lacker, president of the Richmond Fed, speaks on the economic outlook to the Virginia House Appropriations Committee in Richmond.
1:00 ― The Housing Market Index measures homebuilder sentiment. The soft data gets a look from analysts but more attention will be given to the hard data on new construction which comes out Wednesday. Ratings below 50 indicate general pessimism about the market, so the current reading of 18 doesn’t exactly inspire confidence, even if it’s double the score of 9 ― an all-time low ― seen from November 2008 to last March.
- Treasury Auctions:
- 11:30 ― 4-Week Bills
- 11:30 ― 52-Week Bills
Wednesday:
8:30 ― The Consumer Price Index is expected to remain broadly unchanged in most categories, but higher energy prices should should push the headline up 0.2% overall. The core CPI, which excludes food and energy prices, is expected to inch up 0.1%.
“The high unemployment rate is exerting downward pressure on wages, as employers have a larger applicant pool,” said forecasters at BBVA. “Furthermore, with weak demand in a competitive environment, many firms choose not to raise their prices. The abundant slack in the economy helps to buffer inflationary pressures from the fiscal stimulus and monetary easing.”
8:30 ― Housing Starts, a broad measure of new residential construction, have been broadly stable since April following three years of decline. Not much is expected to change in October, with the consensus estimate predicting the annualized pace of construction to inch from 590k units to 600k.
A different perspective is offered by analysts at IHS Global Insight. “Single-family starts are likely to slip, since they have been running ahead of housing permits,” they wrote in a weekly note. “Looking into 2010, single-family starts should improve, propelled by the need to replenish inventory, household formation, and job growth. The recovery will be a slow one, though, lasting into 2012. Multi-family starts should rise, but only because their recent collapse has brought their level so near the bottom.”
Thursday:
8:30 ― None of the analysts surveyed by Bloomberg is expecting the weekly look at Jobless Claims to see fewer than 500,000 initial claims in the week ending Nov. 14, but with the prior week’s level dropping 12k to 502k, it’s certainly a possibility. The consensus expects to see 504k claims, but as I’ve written before, most “estimates” are simply a fusion of the latest data with the four-week average.
10:00 ― The Leading Indicators Index, a broad composite index that attempts to track turning points in the economy, has been expanding for six consecutive months. After GDP expanded by 3.5% in the third quarter it’s no surprise that October should continue growing, with most components signalling stabilization or a rebound.
“A 2.2% increase in the average stock price in the S&P500 will provide a further boost, but the drop in consumer expectations to 65.7 from 73.5 will subtract from the index,” said BBVA. “Further growth in the index could indicate that the economy will expand in 4Q09, which is in line with our baseline forecast; nevertheless, many of the index’s components remain at levels below those of last year, pointing to ongoing economic weakness.”
10:00 ― The Philly Fed Survey should give more context to how the manufacturing sector is doing in November. Analysts often view it and the New York survey (released Monday) together to make predictions for other areas of the country. Following the moderation to +11.5 in September, indicating modest month-to-month improvement, forecasts for October are in a wide range from +3.5 to +17.0. The median estimate is 12.0.
4:45 ― Richard Fisher, president of the Dallas Federal Reserve, delivers the closing address to the annual monetary policy conference held by Washington’s CATO Institute, a libertarian think-tank.
Friday:
No data is released. However, the Philly’s Fed’s president, Charles Plosser, will be Singapore to speak at the Global Interdependence Center conference on food and water.
