Last week the S&P 500 added 4.5%, gold hit a record high, and the US dollar tested new lows for the year. So much for a turning point. This week begins slowly with the bond market closed on Monday, but later in the week retail sales and industrial production numbers are releases, plus the first monthly look at consumer sentiment. A range of government officials will also give their latest updates on the economy, which could put less focus in Tuesday’s dated FOMC minutes.
The Q3 earnings session continues from Tuesday to Friday. Highlights include: Intel, J&J (Tuesday); JPMorgan (Wednesday); Harley-Davidson, Goldman Sachs, Citigroup, Google, IBM (Thursday); General Electric, Bank of America (Friday).
Headlines from the Weekend:
“With federal budget deficits soaring, policy makers and other advocates are eyeing the huge sums that could be raised as a way to cover the costs of new initiatives.” ― Wall Street Journal.
Key Events This Week:
Monday:
Bond market is closed to observe Columbus Day, but the stock market is open. No fresh data will be released though, nor are there any speeches from officials.
Tuesday:
7:30 ― Christina Romer, head of White House’s economic advisors, will address NABE annual meeting in St. Louis.
12:00 ―Donald Kohn, Vice Chairman of the Federal Reserve, will address the NABE annual meeting in St. Louis.
1:15 ― William Dudley, President of the New York Fed, speaks to the Institute of International Bankers.
2:00 ― The Treasury releases its final Budget Statement for fiscal year 2009. In the first 11 months the debt expanded by $1.378 trillion (compared to just $500.5 billion in the year before). September is often a surplus month, but not this year: the median estimate is -$31 billion, with estimates ranging from -$30 billion to -$98 billion.
Analysts from Nomura are on the pessimistic side of the spectrum, believing the annual deficit will be around $1.5 trillion. They a $98 billion debt in September would be “a fitting conclusion to a fiscal year in which the deficit expanded roughly tripled as a share of GDP.”
- Treasury Auctions:
- 1:00 ― 3-Month Bills
- 1:00 ― 6-Month Bills
Wednesday:
8:30 ― If the economy is to continue expanding at a decent pace in the fourth quarter, it needs all the help it can get from consumers, as spending accounts for more than two-thirds of GDP. Unfortunately, the week’s key release, Retail Sales, is expected to see a major reduction following the cash-for-clunkers-led 2.7% gain in August. Wall Street looks for a 2.1% cut in the month, as auto sales fell 25.2%, pushing the annual number of light vehicle sales from 14.1 million units in August to 9.2 million last month. A negative headline is a virtual certainty, so eyes will quickly shift focus to the ex-autos figure, which is expected to move up 0.3%.
“Given the poor state of the labor market and still-subdued consumer sentiment, we believe a sustained consumption recovery remains distant,” said analysts from Nomura Global Economics.
10:00 ― The Business Inventories report for August is expected to show a 0.9% cutback, confirming what the wholesale inventories report said last week.
2:00 ― As the Federal Reserve continues to hold short-term interest rates at historic lows, investors look to the FOMC Minutes for details related to the central bank’s purchases of agency debt and mortgage-backed securities.
- Treasury Auctions:
- 1:00 ― 4-Week Bills
Thursday:
8:30 ― Inflation is expected to remain benign. The all-items Consumer Price Index moved up 0.4% in August and core prices (ex-energy, ex-food) inched up just 0.1%. In September both indexes are set to rise 0.1%.
Analysts from Nomura Global Economics attribute the tame forecasts to high unemployment and low capacity usage. “This slack in resource availability will persist until the economy is once again growing at a pace consistent with its long-run potential, which we expect to develop late in 2010,” they said. “Consequently, core inflation is likely to trend steadily lower over the next two years.”
8:30 ― The first regional manufacturing report is expected to remain in growth territory for the third straight month. The Empire State survey isn’t expected to match September’s 18.9 score, but the 17.5 level predicted by Wall Street continues to point towards healthy stabilization.
8:30 ― Last week’s Jobless Claims report saw initial filings for unemployment benefits drop to the lowest level since January. There were 521,000 filings, still far too high to suggest net job creation, and economists don’t expect much improvement this week. The Street’s forecast is 520k.
“Our dogged attempt to find evidence of a solid return to job creation has turned up nothing,” said Ellen Zentner, senior economist at BTMU. “But what we do find is plenty of evidence that job loss will continue to slow, even if it is simply a side effect of fewer separations, rather than increased hirings.”
10:00 ― It’s always helpful when two manufacturing reports hit markets on the same day. The Philadelphia Fed report will get a lot of attention to see if it matches with the trend set by the Empire State survey from 90 minutes prior. In the past two months, it has. Both indexes have reported stronger growth than anticipated, though expectations are more muted this month. Look for a 12.5 score in October following the 14.1 reading in September.
Friday:
9:00 ― The Treasury’s International Capital report (TIC Flows) is closely watched to track demand for Treasuries, corporate bonds, and other financial instruments. In last month’s report for July, foreign demand for long-term Treasuries was just $15.3 billion, a quarter of what analysts were expecting, while total figures including short-term securities showed an outflow of $97.5 in the month versus -$56.8 billion in June.
9:15 ― Industrial Production rose a total 1.8% in July and August, but the gains will be tamed to just 0.2% in September. As with retail sales, investors want to know what the trend is in the absence of cash-for-clunkers.
“Manufacturing probably stayed in the black even though aggregate hours worked fell 0.5%, as manufacturing productivity gains in the third quarter have been massive,” said Brian Bethune and Nigel Gault, economists at IHS Global Insight. “Productivity overall continues to expand at exceptional rates, and this is providing not only a solid lift to corporate earnings, it is also keeping a lid on inflationary pressures.”
10:00 ― Consumer Sentiment unexpectedly rose last month. But with the jobless rate continuing to climb, some analysts are expecting a “reality check” this month.
“News of continuing job losses, a rising unemployment rate, weak wage gains, and a falling dollar are expected to dampen some of the recent enthusiasm about the emerging economic recovery,” said forecasters from IHS Global Insight.
10:15 ― Richard Fisher, president of the Dallas Fed, delivers keynote address at conference at the Cox School of Business in Dallas.
