Stocks are trading much higher overseas and equity futures look to open sharply higher in the US as global support for the European debt problem grew dramatically this weekend.
Over the weekend, finance ministers from Europe agreed on a €750 billion (nearly $1 trillion) rescue package to fight the debt crisis. The European Central Bank also agreed to begin purchasing European government bonds, with regional branches already purchasing bonds this morning. The Federal Reserve also re-authorized currency swaps with the ECB, the Bank of England, the Bank of Canada, and the Swiss National Bank due to the “re-emergence of strains” in European markets. Also, the IMF, which has approved €250 billion of loan guarantees in the above-mentioned program, also approved a €30 billion loan to Greece, which is part of a larger and distinct €110 billion bailout program.
One hour before the opening bell, Dow futures are up 376 points to 10,711 and S&P 500 futures are trading 45.75 points higher at 1,152.75. The 2 year Treasury note yield is 7.6 basis points higher at 0.896% and the 10 year Treasury note is 14.2 basis points higher at 3.562%.
The June NYMEX crude oil contract is up $2.56 to $77.67, but Spot Gold is down $13.20 to $1,197.20.
Key Events This Week:
Monday:
No significant economic data.
Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
Tuesday:
10:00 ― The economic calendar this week begins with a not-terribly-important Wholesale Trade report. A consensus on expectations for this report was not available, but anecdotal evidence suggests it should show an increase between 0.3% and 0.8%, while the inventory/sales ratio should improve from pretty dismal levels.
11:45 ― Dennis Lockhart, president of the Atlanta Fed, opens the bank's annual Financial Markets Conference, followed by discussion on structured finance moderated by Philadelphia Fed President Charles Plosser.
Treasury Auctions:
- 11:30 ― 4-Week Bills
- 1:00 ― 3-Year Notes
Wednesday:
8:30 ― The deficit in the monthly Trade Balance is expected to widen in March. Exports have been rising recently but at unsteady rates, while the rebound in imports is more indicative of a V-shaped recovery. Economists believe the widening gap will result in a gap of $41 billion in March, compared with $39.7 billion in February.
“Both domestic and foreign demand is picking up, but it’s the relative pace that will push the trade deficit to one of the highest levels since the end of 2008,” predicted economists from BBVA. “The recovery of exports to Asia, Latin America and Canada will continue to strengthen as these regions pull themselves out of the recession.”
“We expect both exports and imports to grow, but imports should outpace exports as the turn in the U.S. inventory cycle pulls in more imported materials and consumer goods,” added economists from IHS Global Insight. “We also expect the petroleum deficit to widen on higher oil prices.”
10:15 ― Eric Rosengren, president of the Boston Fed, moderates discussion on macroprudential supervision at the Atlanta Fed's annual Financial Markets Conference.
1:15 ― James Bullard, president of the St. Louis Fed, speaks on the economy to the Tennessee Dept. of Financial Institutions in Nashville.
2:00 ― The Treasury is anticipated to report a $40 billion gap in the April Budget Statement. That compares to a $21 billion deficit in April 2009. According to Bloomberg, April historically tends to show a large surplus, with the 10-year average surplus at $98 billion. Expectations for the monthly deficit range as low at $15 billion to as high as $60 billion.
“We expect the Treasury to report a budget deficit of $20 billion for April, about unchanged from last year,” said economists from Nomura. “Tax receipts have improved as activity has picked up and expenditures are no longer increasing rapidly (although the level remains high). The improving budget picture is likely to lead to further declines in Treasury debt issuance this year.”
Treasury Auctions:
- 1:00 ― 10-year Notes
Thursday:
8:30 ― Initial Jobless Claims have declined for the past three consecutive weeks, including a 7k improvement to 444,000 for the period ending May 1. Economists generally say that the survey must come in below 450k for a sustained period to indicate overall labor growth in the economy. With the the moving four-week average at 458,500, we’re not there yet, but it’s close.
“Initial jobless claims declined moderately last week and look to be on a gradual downward slope,” said economists at Nomura Global Economics. “Although the current level of initial claims remains historically high, we believe it is consistent with positive private sector employment growth.”
9:00 ― Ben Bernanke, chairman of the Federal Reserve, gives a Q&A session with Philadelphia Fed Deputy Chair Jeremy Nowak at the bank's conference on community development.
9:00 ― Donald Kohn, vice chairman of the Federal Reserve, speaks on a panel to discuss the “lender of last resort” at the Centre for Monetary and Financial Economics Conference in Ottawa.
12:00 ― Narayana Kocherlakota, president of the Minneapolis Fed, speaks to Eau Claire business leaders in Altoona, Wisconsin.
12:30 ― Ben Bernanke gives another Q&A session, this time with Philadelphia Fed Deputy Chair Jeremy Nowak, at the bank's conference on community development.
Treasury Auctions:
- 1:00 ― 30-Year Bonds
Friday:
8:30 ― Retail Sales are anticipated to inch forward by 0.2% in April following a much larger 1.6% gain in March and a 0.5% climb in February. Economists say a decline in vehicle sales ― from 11.8 million units to 11.2 million ― and softer gasoline prices are two reasons why the headline will be weak. With autos excluded, the headline should be +0.5%, versus +0.6% in March.
“With the increase in consumer confidence and the improvement in the labor market, retail sales are expected to rise for the fifth time in six months, illustrating that consumer demand is strengthening,” said economists from BBVA. “While the slow in auto sales will weigh on the total, the impact will be limited because fewer price discounts were offered. This result would support our expectation that consumer spending will again be an essential driver of economic expansion in the second quarter.”
“A seasonally adjusted decline in gasoline prices and cool, rainy weather contributed to the weak results,” said analysts at IHS Global Insight. “April chain store sales indicate strong sales at wholesale clubs and luxury chains but disappointing results at apparel and department stores. Retail sales growth should resume in May, supported by renewed growth in employment and real incomes.”
9:15 ― In contrast to retail sales, Industrial Production should be much stronger in April compared to March. Activity is anticipated to have picked up by 0.6%, compared to a 0.1% increase the month before. This will be the ninth straight month of growth in the index, which has recently been led by manufacturing (+0.9% in March).
“Industrial production growth was held back in March as utility production ― which was temporarily elevated in February due to cold weather ― declined sharply,” said analysts at Nomura Global Economics. “Excluding this distortion production remained quite strong.”
They noted that regional surveys indicate continued increases in manufacturing output, while last week’s labor report suggested an uptick in manufacturing hours and employment.
“The production side of the economy continues to generate positive signals in terms of strong orders and relatively low inventories,” added economists from IHS Global Insight. “Manufacturing employment grew for the fourth consecutive month in April, a sign that businesses are becoming more confident about the strength and duration of the recovery. The European crisis might dampen corporate spending enthusiasm to some extent, but not upset the apple cart of the production recovery.”
10:00 ― Consumer Sentiment hasn’t moved too much in the past five months, and with stocks suffering last week and European debt problems in constant headline rotation, it seems unlikely that much improvement will be seen in the preliminary May survey from Reuters and the University of Michigan. Economists anticipate some improvement, from 72.2 to 73.8, based on the recent employment report, but as non-economists tend to look at the unemployment figure more frequently than the movements of nonfarm payrolls, that seems like a shaky foundation to build a forecast.
“After slipping in April, consumer sentiment is expected to rise in May prompted by the improvement in the employment situation,” said analysts from BBVA. “Private non-farm payrolls added 405K jobs over the past two months. Other economic data has been pointing to growth since mid 2009, but the labor market usually adjusts with a lag. The beginning signs of job growth will improve consumers’ outlook of both the present and the future and translate into greater consumer spending.”
“Employment gains in March and April should help to instill confidence in the economic recovery,” added analysts from IHS Global Insight. “Recent stock market volatility will, however, prolong anxiety about personal finances. Consumers continue to rate buying conditions favorably, largely due to the availability of price discounts.”
10:00 ― Economists look for Business Inventories to rise by 0.4% in March, a comparable increase to the +0.5% headline in February. Last month’s index suggested retail inventories were up 0.3%, while manufacturing inventories gained 0.5% and wholesale supplies increased 0.6%. Overall, inventories have rebounded in four of the past five months, but that followed 13 straight months of sharp losses.
“The business sector is thought to have entered a new stock-building cycle to align inventories with strong demand,” said analysts at Nomura. “But firms remain cautious, rebuilding inventories at only a gradual rate.”
1:40 ― Charles Evans, president of the Chicago Fed, speaks to the Illinois Wesleyan University Associates luncheon in Bloomington.
