Fodder for the Markets

Tuesday, June 14, 2005

After the ouster of Morgan Stanley CEO Philip Purcell and Unicredito's 19.2 billion Euro takeover of German HVB dominating the financial headlines markets have been treading water the last days. The catalysts for an outbreak from their tight trading ranges are coming closer. This week will see an abundance of data that will keep traders in equity, bond and currency markets on the tip of their toes. Producer and consumer prices ain't going to deliver positive or negative suprises after Fed chairman Alan Greenspan had confirmed last Thursday that inflation seems well contained. I am confident that the Fed has a bit of advance knowledge on this, although Greenspan's optimism was contradicted by three other Fed members. For a table of all data read on.
This gives reason to believe that the focus will lie on the health of consumers which will show up in retail sales figures due in less than three hours and consumer sentiment on Friday. Bond and currency markets will concentrate on the new Treasury Inflow Capital (TIC) data on Wednesday, one item I will be watching very carefully as well, for the worries posted here and here. Friday will see the publication of the current account deficit for the first quarter of 2005, the one item elder statesmen like former Fed chairman Paul Volcker worries about most, having said repeatedly that a deficit now running above six percent of GDP is historically unprecedented and unsustainable.
Share markets will take a clue about the economic development from the NY Empire State Index on Wednesday after the latest release showed an unexpected drop way below expectations. Industrial production is due on Wednesday as well.
Housing starts, jobless claims and the Philadelphia Fed Survey, which also came in way below expectations in May, will add details to the current economic picture on Thursday. Remember the old rule that only jobless claims below 300,000 point to a healthy economy. Given the declining share of Americans participating in the labor market this rule of thumb would rather need a downward revision.
All Data of this Week
Tuesday:
Producer Prices May: consensus minus 0.2%, last 0.6%
Retail sales May:
consensus minus 0.2%, last 1.4%
Wednesday:

Business Inventories April:
consensus 0.4%, last 0.4%
Consumer Prices May:
consensus 0.1%, last 0.5%
NY Empire State Index June:
consensus 3.0, last minus 11.11
TIC data April:
no consensus estimates, data distorted before
Industrial Production May:
consensus 0.2%, last minus 0.2%
Capacity utilization:
consensus 79.2%, last 79.2%
Thursday:

Housing starts May:
consensus 2.04 million, last 2.038 million
Jobless claims:
consensus 330,000, last 330,000
Philadelphia Fed Survey June:
consensus 10.0, last 7.3
Friday:

Current account deficit Q1:
no consensus, previous quarter 187.9 billion dollars
Consumer sentiment:
consensus 88.0, last 85.3
NOTE I:
All consensus estimates from Bloomberg.
NOTE II: So called "core" prices are not included as this blogger thinks that one cannot exclude food and gas prices from the CPI. These two are the most unflexible items in consumer spending as consumers cannot live in the cold dark eating indexes while reducing their commuting to work.
Looking up the past data resulted in the general impression that most actual figures came in below expectations recently. Looking at the steadying of oil prices near record levels and the advances of the US dollar it can be guessed that the picture for pruducer prices, industrial production and exports will not look too rosy as prices of US goods have risen more than 12 percent for foreign buyers this year.
It seems the fate of the US economy is burdened mostly on the shoulders of the US consumer and his confidence in the bubbling housing market. Latest consumer credit data have shown that consumers are busy repaying their consumer debts at a faster pace. They cannot be blamed for this in the light of higher interest rates ahead. This behavior has yet to spread to the mortgage sector as well, though. So far they have only reduced their credit card balances by taking out ever more mortgages for refinancing at lower interest. Balancing the budget is a task not only the US administration but the consumers too have yet to take on.

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