US Economic Week Ahead: Cue Earnings

After last week’s barrage of economic data, this week is relatively light. The few exceptions will be Monday’s leading indicator release, Thursday’s jobless claims and existing home sales data, and Friday’s consumer sentiment report. This week’s claims data will likely take on added importance as the market tries to decipher the impact early auto plant shutdowns may have had on the index’s seasonal adjustment factors, leading to better than expected claims data over the past couple weeks. Additionally, starting on Tuesday Fed Chairman Ben Bernanke will deliver his semi-annual monetary policy testimony to House Financial Services Committee, which will almost certainly generate some headlines. But, earnings will again steal the spotlight this week with roughly 33% of the companies in the DJI and 25% of the S&P500 set to report. Some of the major names include Apple, Microsoft, Boeing, Caterpillar, UPS, Morgan Stanley, Yahoo, EBay, Amazon, Texas Instruments, and Advanced Micro Devices.

Monday July 20^th:

10:00AM: Leading Indicators (Risk: Neutral, Market Reaction: Maringal/Moderate): The leading indicators index is a composite index of ten economic indicators considered to be forward looking to economic activity, these include among others jobless claims, building permits, stock prices and the University of Michigan expectations survey. The index climbed in both May and April by 1.2% and 1.1%, respectively. The market is currently anticipating a 0.5% increment in June’s release.

Tuesday July 21^st:

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a 0.9% decline in store sales over the previous week.

8:30AM: Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index of 85 separate data sets designed to represent national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index the three month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. I anticipate that we will see a marginal improvement from last month’s reading of -2.67 based on improving economic data,

10:00AM: Fed Chairman Ben Bernanke delivers his semi-annual monetary policy testimony to House Financial Services Committee

Wednesday July 22^nd:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week the purchase index fell 9.4%; while the refinance index increased by 18.0% on the back of relatively low mortgage rates.

10:00AM: Fed Chairman Ben Bernanke delivers his second day of semi-annual monetary policy testimony to House Financial Services Committee

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector.

Thursday July 23^rd:

8:30AM: Jobless Claims (Risk: Downside, Market Reaction: Significant): After two consecutive weeks of positive surprises, stemming from what was likely erroneous seasonal adjustment factors caused by early auto plant shut downs, we will likely see a correction. The current Bloomberg consensus stands at 560K compared to last week’s reading of 522K.

9:30AM: Fed Governor Daniel Tarullo testifies to the Senate Banking Committee, FDIC, and SEC on regulatory restructuring

10:00AM: Existing Home Sales (Risk: Downside, Market Reaction: Moderate/Significant): The Bloomberg consensus for existing home sales stands at 4.850 compared to last month’s reading of 4.770. It will be important to watch the inventory levels, which last month declined to 9.6 months from 10.1 months, the month prior. But, a recent article in the WSJ highlights the fact that a glitch in the California Association of Realtors computer system may have been inflating the number of homes sold in San Diego over the past several months, which means we will likely see some downward revisions.

10:00AM: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. Last week the Fed’s balance sheet increased by US$34.2bn to move back above US$2 trillion.

Friday July 24^th:

10:00AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Rising stock prices and receding energy prices should bode well for this index, but could be offset by continued weakness on the labor front. The current Bloomberg consensus for July’s final consumer sentiment index is 65.0 compared to mid-July’s reading of 64.6.

Enjoy the weekend!

US Week Ahead: It's all about the jobs!

Despite the shortened work week, we have a rather busy schedule of US economic data releases, climaxing with Thursday's US employment data. Last month's payroll data caught the market by surprise coming in well above expectations, demonstrating the lowest level of job losses since September 2008. But, the big question remains, was this start of a trend or a one-off anomaly. Other economic news in May sent mixed signals, fueling growing uncertainties, which led to a US treasury rally. What this means is that in many investors' minds this month's payroll data may hold the answer to that important question. Therefore we should expect a signifcant jump in trading volumes on the back of any surprises to that report, with an almost certain equity rally and US rates sell-off on better-than-expected data. However, the opposite is also true. Here is the rest of this week's economic calendar:

Monday June 29^th:

8:30AM: Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index of 85 separate data sets designed to represent national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index the three month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading.

Tuesday June 30^th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downside, Market Reaction: Moderate): This weekly index tracks same store sales at major US retailers, and accounts for roughly 10% of national retail sales. Given recent data supporting an increase to the US saving rates, this index could face some downward pressure as people save more and spend less.

9:00AM: S&P Case-Shiller HPI (Risk: Neutral, Market Reaction: Marginal/Moderate): Despite, the significance of US home price data, this index holds a two month lag, meaning this June's data would actually be from April. This lag marginally reduces the index's importance compared to some of the other more timely housing market indicators. Nevertheless, large movements in this index could imply further deterioration or recovery of the US housing market, which could impact trading.

9:45AM: Chicago PMI- Business Barometer Index (Risk: Downside, Market Reaction: Marginal/Moderate): The Chicago PMI measures business conditions in the Chicago area; anything below 50 indicates a contraction while a reading above that level implies an expansion. According to Bloomberg, the market is currently forecasting a reading of 44.5. However, given recent weakness in the auto and manufacturing sectors I expect this number could disappoint. It will be important to pay close attention to the new order and prices paid sub-components. The new oders component tends to be forward looking, while the prices paid component experienced a 60 year low of 28.4 in April.

10:00AM: Consumer Confidence (Risk: Upside, Market Reaction: Moderate): The confidence index, which measures consumers' attitudes towards present and future economic expectations can be a good barometer for consumer spending. This index has recently experienced significant gains as consumers' seem to be focusing on positive economic releases. The current conditions index has remained somewhat stagnant, while the future expectations index experienced an increase of over 20 points last month. However, some deterioration in recent employment data could put some downward pressure on this month's release, but I still believe this index is more likely to surprise to the upside.

Wednesday July 1^st:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP employment report is typically considered a good indicator of the payroll data released later in the week, so a big swing in this data could shift expectations for the employment data released on Thursday and thus significantly impact trading.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): The ISM measures national manufacturing conditions, a reading of over 50 signifies expansion while under a retraction. The current consensus on Bloomberg is 45. It will be very important to look at the new orders component of the ISM, which tends to be a forward looking indicator for the overall index. New orders finished over 50 last month, for the first time in 17 months, but will likely move back below 50 this month.

10:00AM: Construction Spending (Risk: Upside, Market Reaction: Marginal): This index tracks the value of new construction activity on residential, non-residential, and public projects. Recent stimulus spending should help drive up the public projects component of the index, and we will likely see a marginal increase in residential spending.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): A strong number in this index would help support the case of a recovery in the US housing market, which could have a moderate impact on trading. However, it is important to note that not all pending home sales turn into actual sales, but it is a good indicator of sentiment.

June Motor Vehicle Sales (Risk: Downside, Market Reaction: Moderate): Increasing savings rate, tight credit conditions, and a weak job market will likely cause car owners to extend the life of their current vehicles, despite incentive offers, reducing total car sales. This will also be exacerbated by what has recently been increasing gas prices. 7.4mn cars and light trucks were sold in May.

Thursday July 2^nd:

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: VERY Significant): According to Bloomberg, the current market consensus for the change in payrolls stands at -350,000 with an unemployment rate of 9.6%. The average decline in payrolls for the six months preceding April was 643,000 versus 345,000 in May. The market will likely interpret another positive surprise as the beginning of a recovery in the US employment situation, which would lead to a strong rally in equities and selloff for US treasuries; a negative surprise would have the opposite effect. Nevertheless, the unemployment rate will likely drift above 10% in the comings months.

8:30AM: Initial Claims (Risk: Downside, Market Reaction: Significant): This report will be overshadowed by the payroll data, released simultaneously, but is an excellent forward looking indicator for the employment sector. We could see an unexpected jump in claims as the school year ends and teachers who have lost their jobs due to budget cuts begin filing for claims.

10:00AM: Factory Orders (Risk: Upside, Market Reaction: Moderate): Given the recent increment in durable goods orders we could see factory orders surprise to the upside. According to Bloomberg the current consensus forecast for May is a month over month increase of 1.4%.

Friday July 3^rd:

Enjoy the long weekend!