Last Week saw equities hit 12-month highs across the globe, including in Australia, Hong Kong, India, Russia, Europe, England, Brazil and of course the US. The Dow hit the 10,000 mark mid-week but closed under that psychological threshold on Friday. The S&P 500 gained 1.5% overall, pushing the gains since early March to an astonishing 59.4%.
Meantime, WTI crude oil has jumped 120% from its February low of $34 per barrel. A 2009 peak was hit last week as it rose 9.4% $78.53. Never mind 2009 highs, Spot Gold hit an all-time high at $1,070.40 per ounce last Wednesday, though on Sunday night it had fallen to $1049.95.
“Upgrades to the global growth outlook and seasonal weakness in the US dollar during December will set the stage for another powerful rally in commodity prices as the end of the year draws near,” said Michael Lewis, commodities analyst at Deutsche Bank.
Equity Market: Comments from the Weekend
Tobias Levkovish, chief US equity strategist at Citigroup:
“The sheer magnitude of the gains in seven months (relative to average market rebounds off of recession lows) and stretched upward earnings estimate revision trends suggests for some caution, in our view. “With a major change in sentiment and valuation from March 2009 levels, the rally argument gets more difficult, though not unprecedented,” he added.
Robert Kavcic, economist at BMO Capital Markets:
“The Dow broke above the 10,000 level to modest fanfare, with the celebration tempered by the realization that we’ve thrown this party a few times before: Last year, five years ago, eight years ago and, for the first time, a little more than ten years ago. That’s right, a decade of buy-and-hold investing in U.S. equities has produced nothing, and the 10,000 mark is a healthy reminder that we are probably still living life in a secular bear market—though now enjoying a much-gratifying cyclical upswing.”
Key Q3 Earnings Reports This Week:
Texas Instruments, Apple (Monday); Caterpillar, Yahoo, Pfizer (Tuesday); Boeing, Wells Fargo, eBay, Freeport (Wednesday); UPS, 3M (Thursday); Microsoft (Friday).
Key Events This Week:
Monday:
1:00 ― The sole release for Monday is the Homebuilder Sentiment survey from the National Association of Home Builders. The index gauges confidence in the construction and housing industries, which many investors look to when forecasting underlying trends in the economy. Constant increases since February have pushed the index up from historic lows but the headline remains quite pessimistic at 19. Analysts look for a one-point advance to 20 this month.
“During the 1990-91 recession, the index reached a low point of 20. In the current period, the index has been below that level for 17 months,” noted analysts from Nomura Global Economics. “In our view, the sentiment index has a long way to climb before it signals significant optimism among home builders.”
That being said, real estate stocks jumped 32.6% in the third quarter, according to the Mutual Funds Report of the New York Times on Oct. 11.
- Treasury Auctions:
- 1:00 ― 3-Month Bills
- 1:00 ― 6-Month Bills
Tuesday:
8:30 ― Housing Starts have climbed 25% since bottoming out in April. The current pace of new unit construction is 598k per year, and Wall Street expects that to bump up to 615k in the September report. Within the report, single-family units are set to rebound after unexpectedly slipping 3.0% in August. Multi-family units are more volatile, having jumped 25% in August after diving 15% in July.
“Residential construction is expected to improve as a result of better affordability conditions and positive readings on home sales,” said forecasters from BBVA. “Despite the improvement, there is still a significant degree of uncertainty surrounding residential construction as the tax credit will expire in November and the economy will likely recover at a slow pace.”
8:30 ― The Producer Price Index is unlikely to get much attention this month as its more important cousin, the consumer price index, was released last week (headline and core CPI each rose 0.2% in the month). Forecasters look for the headline to fall 0.3% on falling energy prices. The core index, which strips out food and energy costs, is likely to add 0.1%.
“Lower gasoline and natural gas prices should drag the energy category into negative territory,” said the forecasting team at IHS Global Insight. “Food prices are also likely to erase some portion of last month's gain.”
8:00 pm ― Charles Plosser, President of the Philly Fed, speaks on monetary policy to the Stanford Institute for Economic Policy Research in Palo Alto, California.
- Treasury Auctions:
- 1:00 ― 4-Week Bills
- 1:00 ― 52-Week Bills
Wednesday:
2:00 ― The Fed’s anecdotal summary of economic conditions, the Beige Book, should confirm broad improvement in the economy across most Federal Reserve districts. Growth is uneven between districts, however, and commercial real estate activity is suffering across the nation.
“The report is likely to emphasize that government aid has underpinned the recovery and that the prospect for strong growth once support is withdrawn remains uncertain,” said analysts from Nomura.
4:30 ― Eric Rosengren, President of the Boston Fed, speaks on regulatory and monetary policy as he opens the bank’s annual Cape Cod economic conference in Chatham, Massachusetts.
Thursday:
8:30 ― Initial Jobless Claims have fallen in five of the past six weeks, most recently to a nine-month low at 514,000. That’s far from indicating job creation or even stability, but the data suggests October’s employment report will show fewer losses than September. This week forecasters believe the figure will rise to 519,000, but most predictions are little more than melding last week’s numbers with the 4-week average.
10:00 ― Leading Indicators, a composite index that tracks turning points in the overall economy, have been rising for five straight months, suggesting the recession ended in the summer even while unemployment continues to rise. August’s 0.6% gain is expected to be topped by a 0.9% gain in September as equity prices continued to rise and industrial production increased at an annual rate of 5.2% in the third quarter.
“The steep yield curve, lower jobless claims, higher stock prices and more positive consumer sentiment should all add to the index's growth rate,” said analysts from Nomura. “We expect a negative contribution from only one component: the reduced manufacturing work week.”
10:00 ― The FHFA House Price Index doesn’t always get much attention because it only covers single-family homes backed by mortgages guaranteed by Fannie Mae and Freddie Mac. Its competitor, the Case-Shiller index, covers a larger market (including subprime mortgages), and therefore is given more market attention. Both indexes have been reporting modest rises recently.
“Monthly FHFA data show prices rising May, June and July, putting the three-month annualized rate at plus 4.5%. That’s the strongest performance on this basis since early 2006,” noted Ian Shepherdson from High Frequency Economics. He added that with 30-year mortgage rates around 5%, home sales could rise considerably in the near-term.
10:30 ― Eric Rosengren, President of the Boston Fed, speaks at the bank’s annual Cape Cod conference for the second day. He will deliver a paper on whether financial stability should be added to the Fed’s objective.
4:30 ― William Dudley, President of the New York Fed, moderates a panel on monetary policy instruments and the Fed's supervisory function, at the annual Cape Cod conference in Chatham, Massachusetts.
Friday:
8:30 ― Ben Bernanke, chairman of the Federal Reserve, speaks on the supervisory landscape at the Boston Fed’s annual conference in Cape Cod.
10:00 ― Existing Home Sales unexpectedly fell 2.7% in August, ending a four month streak that investors expect to resume in September. The annual pace of homes is expected to move from 5.10 million units to 5.35 million. Investors will also give close attention to the level of overhang, which shank to 8.5 months at the current sales pace in September, the lowest in 2.5 years.
“Inventory levels are in much better shape compared to this time last year and that’s partly the result of the first-time home buyer tax credit (set to expire in November), which will have resulted in an additional 400,000 sold units by most estimates,” said Ellen Zentner, senior economist at the Bank of Tokyo-Mitsubishi. “Yet even outside of the tax-credit-effect, fundamental sales have picked up because prices have fallen so low and, through the Fed’s manipulation, mortgage rates are very low – in other words affordability is too good to pass up.
11:30 ― Donald Kohn, Vice Chairman of the Fed, speaks in a panel discussion on international perspectives, at the Boston Fed's annual conference in Cape Cod.
