The Week Ahead….
Market Focus: With little to no economic news on Monday and Friday weekend events in Japan, Libya, and the Middle East will likely drive the markets. Look for lots of “Inflation” talk with producer prices, consumer prices and Industrial Production.
Monday: Three and Six Month Bill auctions.
ICSC Goldman Store Sales: This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales. Why Investors Care: Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed.
Redbook: A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. Why Investors Care: The pattern in consumer spending is often the foremost influence on stock and bond markets.
Empire State MFG. The New York Fed conducts this monthly survey of manufacturers in New York State. Participants from across the state represent a variety of industries. On the first of each month, the same pool of roughly 175 manufacturing executives (usually the CEO or the president) is sent a questionnaire to report the change in an assortment of indicators from the previous month. Respondents also give their views about the likely direction of these same indicators six months ahead. The consensus estimate is calling for a slight increase from15.43 to 16. Why Investors Care: Investors track economic data like the Empire State Manufacturing Survey to understand the economic backdrop for the various markets. The Empire Manufacturing Survey gives a detailed look at New York state’s manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on the markets. Some of the Empire State Survey sub-indexes also provide insight on commodity prices and other clues on inflation.
Import and Export Prices: Import price indexes are compiled for the prices of goods that are bought in the United States but produced abroad and export price indexes are developed for the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products. Why Investors Care: Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar.
Housing Market Index: The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. Why Investors Care: This report provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments.
FOMC Meeting Announcement: The Federal Open Market Committee (FOMC) is the policy-making arm of the Federal Reserve. It determines short-term interest rates in the U.S. when it decides the overnight rate that banks pay each other for borrowing reserves when a bank has a shortfall in required reserves. This rate is the fed funds rate. The FOMC also determines whether the Fed should add or subtract liquidity in credit markets separately from that related to changes in the fed funds rate. The consensus estimate is expected to leave the fed funds target rate unchanged. Fed watchers will focus on whether the statement has any language suggesting an early end to the second round of quantitative easing or whether a third round is being considered. Also, could rising concerns over inflation lead to the first dissenting vote for 2011? Why Investors Care: The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars.
Housing Starts: A housing start is registered at the start of construction of a new building intended primarily as a residential building. The start of construction is defined as the beginning of excavation of the foundation for the building. The consensus estimate is for a drop from 596 million to 560 million. Why Investors Care: Can you say Ripple Effect? This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. Home builders usually don’t start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic “ripple effect” can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Producer Price Index: The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods received by producers. The consensus estimate is for a .7% rise in the month over month figure and a rise of .2% excluding food and energy. Why Investors Care: The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace. Changes in the producer price index for finished goods are considered a precursor of consumer price inflation. If the prices that manufacturers pay for their raw materials rise, they would have to raise the prices that consumers pay for their finished goods in order to not decrease profit margins. Changes in the supply and demand for labor will affect wage changes with a delay because wages are institutionalized and contractual. However, commodity prices react more quickly to changes in supply and demand.
EIA Petroleum Report: The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products. Why Investors Care: Petroleum product prices are determined by supply and demand – just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices – or price increases for a wide variety of petroleum products such as gasoline or heating oil.
Weekly Jobless Claims: New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. The consensus estimate is for a decrease from 397,000 to 385,000. Why Investors Care: Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
Consumer Price Index: The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The consensus estimate is for a rise of .4% on the headline number and .1% rise minus food and energy. Why Investors Care: The consumer price index is the most widely followed monthly indicator of inflation. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets. The consumer price index is the most widely followed monthly indicator of inflation. The CPI is considered a cost-of-living measure since it is used to adjust contracts of all types that are tied to inflation. Labor contracts are tied to changes in the CPI; Social Security payments are tied to the CPI; and even tax brackets are tied to the consumer price index.
Industrial Production: The index of industrial production is available nationally by market and industry groupings. The major groupings are comprised of final products (such as consumer goods, business equipment and construction supplies), intermediate products and materials. The industry groupings are manufacturing (further subdivided into durable and nondurable goods), mining and utilities. The capacity utilization rate — reflecting the resource utilization of the nation’s output facilities — is available for the same market and industry groupings. The consensus estimate is for a big rise from a previous drop of .1% to an increase of .6%. The “Capacity Utilization” component is expected to rise from 76.1 to 76.5. Why Investors Care: The index of industrial production shows how much factories, mines and utilities are producing. The manufacturing sector accounts for less than 20 percent of the economy, but most of its cyclical variation. Consequently, this report has a big influence on market behavior. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high (above 85 percent), it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures.
Leading Indicators: A composite index of ten economic indicators that should lead overall economic activity. This indicator was initially compiled by the Commerce Department but is now compiled and produced by The Conference Board. The consensus estimate is for a very big jump from the previous .1% gain to a 1% gain. Why Investors Care: specifically, it was designed to lead the index of coincident indicators, also now published by The Conference Board. Investors like to see composite indexes because they tell an easy story, although they are not always as useful as they promise. The majority of the components of the leading indicators have been reported earlier in the month so that the composite index doesn’t necessarily reveal new information about the economy.
The Philadelphia Fed Survey: The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production. The consensus estimate is for a drop from 35.9 to 32. Why Investors Care: By tracking economic data such as the Philly Fed survey, investors will know what the economic backdrop is for the various markets. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation.
There are no reports today but it is Quadruple Witching.