The benchmark S&P 500 jumped more than 5.4% in last week’s holiday-shortened week. But the index remains about 3% off its 50-day moving average, according to economists at BMO Capital Markets.

It was a week of little data, however, whereas this week’s schedule is packed. Key reports include retail sales on Wednesday and commentary from the Federal Reserve a day later. Investors will also be watching the month’s first manufacturing reports, Friday’s glance at consumer sentiment, and two reports on the risk of inflation/deflation.

Meanwhile, corporate earnings for the second quarter will begin to be released.

“Earnings momentum overall should remain solid, especially the year-over-year comparisons,” said economists at IHS Global Insight. “There are also some signals that the loan charge-offs in the banking sector may be close to cresting. That rite of passage for the banking sector, when it comes, will be a watershed for the current cyclical recovery.”

Monday:

No significant events.

Treasury Auctions:

• 11:30 ― 3-Month Bills
• 11:30 ― 6-Month Bills
• 1:00 ― 3-Year Notes

Tuesday:

8:30 ― The Trade Balance is expected to produce a monthly deficit of $39 billion in May. That’s slightly narrower than the $40 billion in March or the $40.3 billion gap in April, when exports slipped 0.7% and imports fell 0.4%. The expected narrowing is mostly a result of petroleum imports, which were flat the prior month. 

“We expect both export and non-oil import volumes to bounce higher after declines in April,” said economists at IHS Global Insight. “The underlying position is that both export and import growth are slowing after a very strong rebound that began in mid-2009, but exports are slowing more than imports, leaving trade as a net drag on GDP growth right now. We expect trade to subtract 0.9 percentage points from second-quarter growth.”

2:00 ― The June Budget Statement from the US Treasury is anticipated to huge compared to historical averages. Economists are expecting a $70 billion monthly shortfall, versus a monthly average surplus of almost $17 billion over the past 10 years, according the Bloomberg data. The figures follow a May deficit of $135.9 billion.

Economists at Nomura put their faith in the Congressional Budget Office, which has estimated a monthly deficit of $69 billion in June. 

“Because its forecast has a remarkable record for accuracy, we believe that the actual number for June's budget deficit, which is released by the US Treasury, will be close to the CBO's estimates,” they wrote in a weekly note.

Treasury Auctions:

• 11:30 ― 4-Week Bills
• 1:00 ― 10-Year Notes

Wednesday:

8:30 ― Retail Sales, the biggest macroeconomic data entry of the week, is expected to upset markets with a 0.2% overall decline in June. Once stripped of auto data, markets are expecting sales to be flat. Those figures are modest relative to the 1.2% downward surprise recorded for May, which economists had guessed would be +0.4%. Sales were, however, 6.9% up from one year ago, indicating that a recovery is still underway.

“Retail sales are expected to slow in June for the second time following seven months of growth,” said economists at BBVA. “Auto sales will be the primary driver due to the 4.8% drop in vehicles sold. Nevertheless, retail sales excluding autos will not exhibit much change. Consumer confidence declined in June and the weakness in non-farm payrolls will likely result in lower personal income.” 

They further wrote that a quicker recovery in sales is dependent on the labor market, which has proved sluggish. 

Economists at IHS Global Insight are pessimistic, predicting a 0.8% drop in the month, including a 0.5% drop in the ex-autos category.

“Sales at building materials stores are likely to decline again as the energy-efficient appliance incentives wind down, while gasoline station sales should decline on lower gasoline prices,” they wrote. “In other outlets, sales probably edged higher based on the tepid readings from chain stores. We expect sales to pick up again in the third quarter, but consumer spending has lost momentum after three strong months from February through April.”

10:00 ― Business Inventories rose 0.4% in April with manufacturing inventories climbing 0.5%, wholesale inventories gaining 0.4%, and retail inventories edging up 0.2%. Consensus forecasts were not available for May, but other indicators suggest business confidence for the broader recovery fell in the month.

“Inventories in the private sector are likely to have decreased by 0.4% in May primarily because of soft commodity prices,” said analysts at Nomura Global Economics. “In addition, private firms slowed the product-stocking process in line with disappointing sales numbers. Both factory shipment and retail sales were down more than a full percentage point month-on-month.”

2:00 ― The FOMC Minutes from the Federal Reserve’s June 22-23 monetary policy meeting will be closely watched. The statement from that meeting was perceived as giving a more cautious outlook on growth and inflation ― recovery was merely “proceeding,” the housing market was “depressed,” labor markets were only “improving gradually,” and Kansas City Fed president Thomas Hoenig dissented for the fourth consecutive meeting.

In looking for further commentary on those significant changes, economists at Deutsche Bank said these minutes are the main event of the week.

“Coupled with the incrementally negative statements on housing and employment, we will be looking for any further signs of concern around European sovereign debt issues spilling over into the US economy,” they wrote. “As we have written previously, US exports to the euro area are about 1% of GDP, so we do not see as imminent a threat to the current recovery as policymakers appeared to have perceived at the June meeting. Nonetheless, it is clear that monetary policymakers will err on the side of caution, keeping in place extreme accommodation until confidence has been regained in the European banking sector.”

Deutsche Bank also said it’s possible the Fed could begin discussing further quantitative easing measures.

“With short-term interest rates near zero, and with the balance sheet nearly three times its size prior to the Lehman bankruptcy, the Fed has few options left for further monetary stimulus,” they noted. “Hence, any downside risks to growth would likely be met through a commitment to keep current policy accommodation in place for an extended period.”

Treasury Auctions:

• 1:00 ― 30-Year Bonds

Thursday:

8:30 ― The Producer Price Index fell for a second month in May, falling 0.3%. With food and energy prices excluded, prices rose 0.2%. There’s considerable slack in the economy and few are expecting inflation to take off any time soon, but more analysts are concerned about the risk of deflation. In June, headline prices are expected to fall 0.1% as food and energy prices each fell last month. Core prices are set to rise 0.1%.

“Falling prices for fruits, vegetables, and meats should drag the index for food roughly 0.3% lower, said economists at IHS Global Insight. “On the energy front, gasoline, diesel, and fuel oil are all set to ease back in June. . . Durable goods prices should continue their recent gains as businesses invest their cash in capital equipment and software. Recent steep declines in commodity prices should begin to move through the pipeline, with crude and intermediate materials prices declining.”   

8:30 ― The Empire State Manufacturing Index dropped nearly 13 points from 31.9 to 19.1 in May, then edged up to 19.6 in June. In July, the Street looks for a score of just 18 ― well above the zero threshold indicating growth but marking a significant slowdown from the early months of the year. 

“While the index is volatile because of the small sample size of the survey (about 100), it is likely that the manufacturing recovery in New York state is losing momentum,” said economists at Nomura.

8:30 ― The first Jobless Claims survey for the month saw initial claims for unemployment benefits fall to a tw0-month low at 454k. For the week ending July 10, economists are expecting 445k new claims, which is below the 450k level that many analysts say is needed to suggest overall job growth. The range of expectations is from 420k to 460k. Meanwhile, the same survey indicates that 4.413 million people continue to receive state benefits as of the week ending June 26.

9:15 ― Industrial Production is set to fall 0.2% in June ― marking the first decline in twelve months ― after the hefty 1.2% leap in May and the 0.7% advance in April. One culprit is vehicle product, which gave a major boost in May but is anticipated to be a drag in June. Electricity productions is expected to remain growing but at a less robust pace in May, while manufacturing was much weaker.

“Nevertheless, IP will remain at a healthy level and one of the highest since November 2008,” said economists at BBVA. “Industrial production, particularly in manufacturing, has been leading the economic recovery and has been a source of job growth. As a result, a slowdown in the pace of expansion could indicate that hiring in the industry could ease as well.”

Economists at IHS Global Insight said the expected pause in June “should only be temporary as July has all the markers of a booming month ― a 100 degree heat wave, some cancelled model-year-changeover shutdowns in autos, plus a return to decent growth in core manufacturing more in line with recent trends.”

10:00 ― Predictions vary widely for the Philadelphia Fed Survey in July. The median estimate looks for a score of 12.0, up four points from the 10-month low of 8.0 in May. Estimates range from 4.1 to 15.0. Even the optimistic guesses are below the levels seen earlier the year. Combining this survey with the Empire Fed index and one doesn’t get a very nice picture of the manufacturing sector.

“We expect the business barometer of the manufacturing sector in the Philadelphia Fed's region to jump to 15.0 in July as payback for the sharp decline in the previous month,” said economists Nomura. “Although manufacturers' sentiment has been improving at a slower pace, the recent variation of the Philadelphia Fed's index was a little choppy and we believe the unexpectedly disappointing headline number in May did not reflect the underlying trend of manufacturing activity.”

Friday:

8:30 ― Much like its cousin PPI, the Consumer Price Index looks to remain benign in June. The Street is looking for a 0.1% fall in headline prices, the third straight drop, and a 0.1% increase in core prices (which excludes food and energy prices). In the prior two months the headline index has shed 0.3% in total, causing talk of deflation, yet those decreases were mainly a result of energy prices. Core CPI has been more stable.

“Inflationary pressures remain at bay,” said economists at BBVA. “Falling energy prices will keep headline inflation in check while core price pressures remain minimal due to economic slack and capacity under-utilization. Core inflation is expected to remain low in 2010, which supports our expectation that the Fed will maintain a low fed funds rate for a prolonged period of time. However, recent surprises have been to the downside, which could indicate low rates could remain low for longer than our forecast of 1Q11.”

Economists at IHS Global Insight said the key driver of the index “should be a roughly 4% decline in seasonally-adjusted gasoline prices, more than offsetting modest increases in food and other prices.” They said core prices remains stagnant as consumer demand “remains under the thumb of a dismal labor market.”

9:00 ― The Treasury International Capital or TIC Flows report ― a measure of what financial instruments are flowing in and out of the country ― remained healthy in April as foreign investors sought the safety of US Treasuries. Inflows were up $72.4 billion in the month versus a six-month average of $63 billion, and foreign inflows into Treasuries were trending at a pace of almost $1 trillion annualized. US corporate bonds were also mopped up in March and April after eleven months of outflows, while net flows into US equities were $9.4 billion. In May, volatility abroad, particularly in the eurozone, should help inflows tick up higher across the board.

“As the spike in global risk aversion began in early May, this week's May data are likely to report increasingly strong foreign investors' appetite for US dollar-denominated assets,” said economists at Nomura Global Economics.

10:00 ― It’s a bit odd that Consumer Sentiment has been rising so steadily over the past few months. The 72.2 score in April moved up to 73.6 in May and 76.0 in June. Meanwhile, the S&P 500 fell 9.5% over the past three months. This month, the index is finally expected to take a hit, albeit by just one point to 75.0. 

Economists said employment concerns will drive the report lower, as well as volatility in equities. However, these concerns aren’t novel, so the report could really go in either direction. 

HERE is more color on the week ahead.