Across the board investors are worried. Equities are down, Treasuries are soft, crude oil is flat, the dollar is weaker and even gold is in sell-off.t
Two hours before the week’s opening bell, Dow futures are off by 14 points to 10,278 and S&P 500 futures are down 2 points to 1,088. WTI Crude oil is up 2 cents to $76.07 per barrel and Spot Gold is $7.54 lower at $1170.09.
“Uncertainty rules in financial markets to start the week,” said Sal Guatieri from BMO Capital Markets. “Equities are mixed, with emerging markets and Asian shares generally higher (led by a 3.2% gain in the Shanghai Composite index), but Europe down and S&P 500 futures slightly in the red.”
“Black Friday” sales were up 0.5% compared to last year, according to the National Retail Federation (is spending exhausted already though?). And most economic releases this week are accompanied by high expectations (including positive numbers for the manufacturing and service sectors, plus the smallest monthly job loss of the year.
But investors remain worried about the aftermath of Dubai’s debt crisis.
“As the Dubai debt crisis deepens, the UAE’s central bank announces a new liquidity facility for local and international financials, starting from Monday, when local markets return from the four-day Eid Al Adha holiday,” Erik Franco from The Overnight Express writes. “The central bank also says it ‘stands behind’ lenders exposed to the fallout from Dubai World.”
In the Washington Post, Federal Reserve chairman Ben Bernanke writes that congressional proposals on financial reform would “significantly reduce the capacity for the Federal Reserve to perform its core functions.” He calls them “very much out of step with the global consensus on the appropriate role of central banks.”
Only one piece of data will be released Monday but, as a regional report, it’s unlikely to sway the markets.
9:45 ― Expectations are high for the Chicago Business Barometer (the “Chicago PMI”). Last month the index blew away forecasts as the regional index of manufacturing and the service sector climbed more than 8 points to 54.2, well past the growth threshold. Economists expect more of the same in November. The consensus is for a 53.0 score, largely based on 15-point jump in New Orders last month. If forecasts are right, the market will be optimistic for tomorrow’s nationwide ISM manufacturing index.
“We reckon the rebound in auto production after the clunker program will lift the index further, but it is now near its peak,” said Ian Shepherdson from HFE, who forecasts a level of 56.0.
- Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
10:00 ― The ISM Manufacturing Index is expected to show growth for the fourth consecutive month in November. Regional indexes have been slightly mixed this month with the Philly Fed index beating expectations at 16.7 (up from 11.5 in October) but the Empire State survey coming in weaker than predictions at 23.5 (down from 34.6). Each survey was well into positive territory though, which suggests that the consensus forecast for the ISM, at 55.0, is on the mark (from 55.7 in October.)
“While demand is picking-up slowly, the need to replenish the extremely low levels of inventories could also be stimulating activity,” said forecasters at BBVA. “Furthermore, the ISM acts as an indicator of overall economic performance and will come in at a level consistent with economic growth for the seventh consecutive month, which is in line with our forecast of economic expansion in 4Q09.”
10:00 ― The jump in Construction Spending in September isn’t expected to be repeated in October. Forecasters see the 0.8% gain being followed by a 0.4% dip as commercial real estate continues to weaken.
“While the decline in spending on residential construction appears to have reached a bottom given the improvement over the past three months, commercial real estate construction spending will continue to deteriorate,” wrote economic forecasters from BBVA. “Residential construction is expected to improve further in the near term due to low inventories of new homes and the pick-up in demand, but levels will remain below those of the previous year.”
10:00 ― The Pending Home Sales Index could be misleading this month. The index tracks contracts for existing home sales that have been signed but not finalized, and those number could be skewed in October. The government tax incentive was set to expire at the end of November but on Nov. 6 it was extended to mid-2010.
“The then-impending end of the first-time buyer tax credit means expect pending sales to drop by about 5%, but this is largely a guess; anything could happen,” said Ian Shepherdson from HFE.
The consensus expects contracts to fall 0.8%.
12:20 ― Charles Plosser, president of the Philly Fed, speaks on the economic outlook to in Rochester, NY.
- Treasury Auctions:
- 11:30 ― 4-Week Bills
8:15 ― The ADP Employment Report is a key tool in forecasting the official employment data that comes out the first Friday of each month. Last month the ADP report showed 203,000 job losses in the private sector of the economy in October, compared with 227,000 in September. Another 150,000 private jobs are expected to have vanished in November.
“Last month, the ADP forecast was 13,000 lower than the official BLS count of private employment, and over the past six months this bias has averaged 79,000. We continue to put a low weight on the ADP figures in developing our forecast for nonfarm payrolls,” wrote analysts from Nomura Global Economics.
2:00 ― The Federal Reserve’s Beige Book, an anecdotal summary of each of the 12 regional economic districts, will give markets a broad idea of where things have been heading in the previous six weeks. Economists will glean the synopsis to look at trends in real estate and manufacturing, and many more will look at it to gauge the retail market as the holiday season gets underway.
“The report will likely be more positive about non-auto consumer spending, in particular,” analysts from Nomura wrote. “The latest FOMC minutes (for the meeting at which this Beige Book was presented) said that these data signal "more underlying momentum in the recovery". We again expect negative comments about commercial real estate and the labor market. Price pressures likely remained non-existent.”
8:30 ― Jobless Claims fell 35k last week to their lowest level since early September 2008. The number of initial claims ― 446k ― has not been seen since Lehman Brothers collapsed and triggered a global sell-off. For the week ending Nov. 28 economists expect to see 485k claims, more than the prior week but below the psychologically important 500k level. It’s worth noting that Thanksgiving could skew the data though. “Seasonal adjustments” attempt to take account of this but calculations can’t be perfect. Any number well off the consensus charts will likely be dismissed as a blip.
8:30 ― Productivity continues to climb and labor costs continue to fall, according to the Q3 Productivity and Costs report on November 5. Revisions are expected to trim the +9.5% productivity surge to +8.6%, while the -5.2% cut in unit labor costs is expected to become a less dramatic -4.2%. If forecasts are right, the numbers will be of interest to specialists but for the average person the report will be of little significance as the trends are the same.
10:00 ― The ISM Non-Manufacturing Index has been growing for two months but its signs aren’t pointing to a healthy economy just yet. Nine industries were growing but seven were in decline and two were in unchanged, its October report said. In November the headline is set to rise from 50.6 to 52.0, and many sets of eyes will be looking to see if the employment component stays positive after its surprise jump into the black last month.
Analysts from IHS Global Insight agree with the consensus forecasts but are not optimistic in the medium term. “Freight activity has been picking up slowly, and there should be less downward pressure on employment levels in November. Financial markets continue to improve, ” they wrote. “However, momentum behind orders appears to be stalling out.”
- Treasury Auctions:
- 9:00 ― 30-Year Bonds
- 11:00 ― 3-Month Bills
- 11:00 ― 6-Month Bills
- 11:00 ― 3-Year Notes
- 11:00 ― 10-Year Notes
8:30 ― No economists are expecting the Employment Situation survey to report growth in November, but plenty are forecasting a decline of fewer of 100,000, which implies growth could be just one to two months off. The range of predictions is from -75k to -175k and the median is -100k.
“The effects of the recession on the labor market have been deeper than in previous recessions,” wrote analysts at BBVA. “Furthermore, businesses are expected to maintain conservative hiring practices even as recovery takes hold. As a result, consumer spending will remain constrained until the employment outlook improves, restricting the pace of economic growth.”
The other question is whether the jobless rate will continue to rise or not. Most analysts are cautious, estimating it will remain at 10.2%.
“Retail employment will probably do badly, since holiday hiring is likely to be more subdued than the seasonal adjustment process anticipates,” wrote economists from IHS Global Insight, who expect 175k losses in the month. “We expect the unemployment rate to hold steady at 10.2% after its big jump last month, but it has not yet peaked.”
Analysts from Nomura are more hopeful. “We expect that the unemployment rate fell to 10.1% after rising by 0.4 percentage points last month. Our forecast of a decline in the unemployment rate rests on the assumption that the recent weakness in household employment will prove temporary.”
10:00 ― Charles Plosser, president of the Philly Fed, speaks for the second time this week, this time delivering opening remarks at a conference on Policy Lessons from the Economic and Financial Crisis in Philadelphia.
1:15 ― James Bullard, president of the St. Louis Fed, speaks at the same conference.