Since Monday the benchmark S&P 500 has tumbled 0.56% but with fresh data on housing, growth, manufacturing, and consumer sentiment all before Noon, the trend could reverse course quickly.
90 minutes before the open, Dow futures are down 4 points to 10,312 and S&P 500 futures are trading 0.20 points higher at 1,102.50.
In recent FedSpeak, St. Louis Fed president James Bullard said inflation is a medium-term risk that will be watched closely. He said rising expectations would be “a major concern” to the recovery which is otherwise “not completely established” but “reasonably good.”
Meantime, Fed Governor Elizabeth Duke called lending conditions “strained,” adding that a full recovery in the banking system will take time.
Key Events Today:
8:30 ― GDP expanded well beyond expectations in the fourth quarter, rising 5.7% and marking the fastest quarterly surge in more than six years. Details were less optimistic, however, as inventories made up much of the gains, as did spending from the stimulus package, though that played a less of a role than in the prior quarter. In this first set of revisions, the consensus is to see no change.
Economists from IHS Global Insight, however, look for 5.9% growth. “Based on December's data, it seems that inventories fell even less in the fourth quarter than initially estimated, so that the boost to growth from inventories will be even bigger,” they predict. “That positive should be partly offset by lower estimates for construction spending (especially state and local), and a smaller boost from foreign trade than first thought.
“The shift in the composition of growth – more inventories, less final sales – is mildly negative for first-quarter growth prospects,” they added.
9:45 ― The Chicago Business Barometer, which tracks the services and manufacturing industries, has nearly doubled over the past year, and last month it hurdled over the 60 mark for the first time in close to three years. In February the index is expected to retrace some gains and fall back 1.5 points to 60.0, but some economists are looking for further gains to as high as 64.3.
“Although we expect business conditions for firms in the Chicago area to continue to improve, the rate of change in activity ― which is related to the level of the index ― is likely to slow,” said analysts from Nomura. “The index is also at quite high levels and has increased for four consecutive months. We therefore think a modest retreat looks likely.”
10:00 ― The U of Michigan/Reuters Consumer Sentiment report was a bit weaker than forecasts earlier this month. It declined slightly to 73.7 in the preliminary reading and there isn’t much reason to expect a dramatic change in the revisions.
“The final report should confirm the early February findings ― consumers view the current economic situation more favorably but they are a bit more pessimistic about the outlook for the economy and personal finances in the year ahead,” said economists from IHS Global Insight. “After a solid gain in retail sales in January, we expect that real consumer spending will increase at a 2.6% annual rate in the first quarter, up slightly from 2.0% growth in the fourth quarter of 2009.”
10:00 ― Existing Home Sales fell 16.7% in December, with sales falling in all four regions including a 26% decline in the Midwest. The broad decrease reflected the passing of the original November 31st expiration date of the first-time home buyers tax credit. With the tax credit being extended into April 2010, growth in sales should resume: the consensus is for the pace of sales to be 5.50 million, up from 5.45 million a month before.
“December’s decline showed just how much the fragile housing market recovery is dependent on government support at the moment,” said Ellen Zentner, macroeconomist at BTMU. This month she expects a tepid rebound.
The evidence so far is that the extended tax credit is having “minimal effects,” said economists from IHS Global Insight, who noted that mortgage applications tumbled to a 13-year low in November, according to the Mortgage Bankers Association.
“We still believe that the effects of the second tax credit will kick in soon,” they wrote. “But time is getting short, since homeowners have until April 30 to sign the contract and until June 30 to close the deal.”
1:30 ― Daniel Tarullo, governor of the Federal Reserve, and Charles Evans, president of the Chicago Fed, discuss financial reform.
