Markets are optimistic ahead of a week packed full of data. Equities are looking for a higher opening, commodities are mixed, the dollar is slightly up, and Treasuries are softer.
About two hours before the open, Dow futures are up 33 points to 10,344 and S&P 500 futures are 3.50 points higher at 1,106.90.
WTI crude oil is up 36 cents to $80.02 per barrel, but Spot Gold is down $2.15 to $1115.45.
Key Events This Week:
Monday:
8:30 ― Personal Income & Outlays are each expected to advance by 0.4% in January, while the Core PCE price index (inflation) is expected to remain flat. In December, income rose 0.4%, outlays edged up 0.2%, and core PCE inched up 0.1%.
Economists at BBVA note the expected gain in income will be the seventh month in a row.
“However, as in the previous month, growth will be driven by proprietors’ income and government transfers rather than by wages,” they wrote. “While employee compensation is no longer declining, the weak labor market will keep wage inflation subdued.”
Millan Mulraine from TD Securities predicts that inflation will remain unchanged and, in the coming months, “ease further, as the growing economic slack in the U.S. economy dampens core consumer price pressures.”
10:00 ― The ISM Manufacturing Index is expected to remain robust in February but economists aren’t expecting the pace to keep up with January’s strong 58.4 reading. The consensus call is for 57.5 (over 50 indicates growth), which will mark the sixth straight month of growth. The upbeat estimates are based on strong regional readings as well as the new orders component from January, which at 65.9 points to high levels of production this month.
“The Empire, Philadelphia Federal Reserve, and Chicago purchasing managers' surveys were unanimous that February was a solid month and a bit stronger than January,” said economists at IHS Global Insight. “Orders and shipments should have remained solidly in the black, but the extra push should come from inventories no longer falling.”
Ian Shepherdson from HFE added: “The three regional numbers in our model ― the weighted sum of the key Philly components, the Chicago headline and our estimate of seasonably adjusted Milwaukee orders ― all rose, implying the headline ISM should rise to about 60 from 58.4.”
10:00 ― The free fall in Construction Spending won’t be stopping in January, economists say, predicting a ninth consecutive fall. For the last two months the index has fallen 1.2% and in January it’s set to fall 0.8%. A rebound in housing starts is one reason why spending won’t be cut as much as prior months, but commercial real estate it still in disarray and that should keep overall numbers in the red.
Ian Shepherdson from HFE advises not to take the numbers too seriously given how dramatic recent revisions have been.
“We think it would be a good idea to ignore the December construction spending numbers, because the monthly data are so volatile, and the subsequent revisions are so big, that they are useless,” he wrote in a weekly note. “Estimates of the underlying trends are valuable, and we use the quarterly numbers as an input to our GDP estimates, but there is no certain information in the monthly numbers.”
- Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
Tuesday:
1:00 ― Eric Rosengren, president of the Boston Fed, speaks at a conference on post-crisis capital markets in Philadelphia.
2:00 ― Naranyana Kocherlakota, president of the Minneapolis Fed, speaks to the Allied Executives Business & Economic Outlook Symposium in Minneapolis.
- Treasury Auctions:
- 11:30 ― 4-Week Bills
Wednesday:
8:30 ― The ADP Employment Survey saw the economy shed 22K private jobs in January ― the twenty-fourth consecutive month of losses but the slowest pace of cutbacks since December 2007. Economists are anticipating another 10k jobs lost in February, which, if true, could point to an overall increase in Friday’s government survey because it includes gains in the public sector.
“Our forecast for nonfarm payroll employment implies a decline in ADP private employment of about 70,000,” said economists from Nomura, predicting a decline well below the consensus. “A slightly lower figure would have no implications for our payrolls forecast.”
9:00 ― Richard Fisher, president of the Dallas Fed, speaks on globalization and the recovery to the Council on Foreign Relations in New York.
10:00 ―The ISM Non-Manufacturing Index hasn’t posted results in the same growth realm as its manufacturing cousin, but at least it recorded growth last month. In February the index, which tracks the services, financial, and construction sectors, is expected to climb half a point to 51.0.
“While freight activity picked up in recent weeks, this was offset by a deterioration in financial market conditions, including lower equity prices and increased volatility in both equity and bond markets, while employment indicators have not signaled much improvement,” said economists from IHS Global Insight.
1:00 ― Dennis Lockhart, president of the Atlanta Fed, speaks on credit markets and the economic outlook to the New York Association for Business Economics.
2:00 ― The Fed’s Beige Book, an anecdotal summary of economic conditions published two weeks before the FOMC meetings, reported on January 10 that ten of the 12 federal reserve districts were improving while two districts were mixed. Further improvement should be anticipated in this synopsis but with unemployment near double-digits it seems unlikely that a robust rebound will the in the cards.
“The report is likely to point to strong growth in US manufacturing and to note that final demand is partly coming from strong foreign growth,” said economists from Nomura. “In contrast, we expect respondents to report limited growth in housing and the labor market. We will be scrutinizing the section on inflation and wages to gauge whether price trends are weakening further or holding steady at subdued levels.”
Thursday:
8:30 ― Initial Jobless Claims continue to befuddle economists. Last week the index jumped 22k to a four-month high of 496,000. In this week’s survey the consensus is 475k, but that’s little more than a rehash of the four-week average.
“These figures have behaved bizarrely in recent weeks, with claims dropping sharply in the first week of February and then rebounding mid-month,” said economists at Nomura. “We suspect this reflects seasonal adjustment distortions, as the unadjusted level of claims has gradually declined over the past three weeks. However, even looking past these distortions, the current level of claims is not consistent with private-sector employment growth, in our view.”
8:30 ― Productivity soared by 6.3% in the fourth-quarter while Costs were slashed by 4.5%. In the revised estimates the story is expected to be the same, only more so. Productivity is set to be 6.4% and costs should be cut 4.5%. The estimates are based largely on the the GDP revisions from late February.
“The fourth quarter boost in productivity reflected a 7.2% surge in output, following a 2.2% gain the prior quarter,” economists at IHS Global Insight said. “Hours worked actually rebounded a modest 1.0% after a 4.7% annualized drop in the third quarter. Looking ahead, the upcoming revision to fourth quarter numbers should nudge productivity a little higher and bump unit costs down based on the 0.2 percentage point upward revision to fourth quarter GDP (to 5.9% annualized growth).”
10:00 ― Pending Home Sales Index plunged 16.4% in November but then rose 1% to end the year. In the first months of January sales are expected to continue modestly, while the extension of the first-time homeowner tax credit could provide some additional boost.
11:00 ― Treasury Department announces auction supply for 3 year notes, 10 year notes, and 30 year bonds. MND expects $40 billion 3s, $21 billion 10s, and $13 billion 30 year bonds.
1:00 ― Charles Evans, president of the Chicago Fed, speaks to the CFA Society of Chicago.
Friday:
8:30 ― The Employment Situation remains dire and few economists are predicting any improvement in February. The consensus among economists is to see 50k jobs lost compared with 20k in January. The worsening is a reflection of cold weather, while on the upside there should be some temporary hiring for the 2010 Census.
Economists at Nomura estimate the underlying trend in private employment growth to be about -20,000, adding that a firm read is tough because of volatile jobless claims.
“The severe winter storm that battered the Northeast during the period in which the employment figures were calculated may depress job growth,” they added. “Based on the performance of payrolls around other storms ― in particular the Northeast blizzard in January 1996 ― we assume that weather-related factors will subtract 50,000 from employment growth.”
Analysts at BBVA added: “While job losses have slowed significantly from 2009’s average of 398K, they will continue in February. The transition to net job creation will be slow because businesses are currently increasing productivity of existing employees in order to meet new demand. The labor market could remain one of the main challenges to recovery in 2010.”
The unemployment rate, which fell from 10.0% to 9.7% last month, is expected to rise to 9.8%.
3:00 ― Consumer Credit has been falling steadily since mid-2008. In December credit fell by $1.8 billion, a tiny amount compared to the record $21.8 billion drop in November. In January the consensus looks for a $4.0 billion drop, with estimates ranging from $3.0 billion to $10.0 billion.
“Consumer credit outstanding is expected to shrink for the eighteenth consecutive month as consumers continue to whittle down their debt and lenders maintain tighter credit standards than before the crisis,” wrote economists at BBVA. “Non-revolving credit has begun to stabilize, but the ongoing decline in revolving credit indicates that households are limiting the use of credit cards. Household deleveraging could be one of the primary drivers behind the slow recovery of PCE in 2010.”
