Enough Data To Push Markets Out Of Balance

Monday, July 11, 2005

The coming week will bring a slew of data that might wash markets out of their recent trading ranges. Having forecasted last week's trading range of the Dow Jones correctly between 10,200 and 10,450 points The Prudent Investor projects a slightly weaker bias for this week. In my opinion the Dow Jones will not move higher than 10,500 whereas the downside risk reaches to 10,100 as there are lots of dangers lurking at the price front. Don't ask for a projection of the bond market's performance. I refer you to Alan Greenspan's classic; the conundrum is still here and will mainly depend on how much longer the Fed will keep pouring liquidity into the market. No relief to be seen on the oil markets either: The holiday season and no slowdown of demand in the Far East seem to be just the right ingredients for new crude records. Find a table of this week's data below.

FedFunds and Inflation

GRAPH: Inflation (red) and Fed Funds (green) and their difference (yellow) over the last 40 years.

Given that last Friday's employment report benefitted mostly from the birth/death model as there would have been job losses otherwise retail sales won't be able to show a positive surprise.
The same applies to the new trade balance figures where high oil prices and continuing lame exports could result in a figure significantly higher than the consensus forecast of an unchanged 57-billion dollar deficit. Remember that last month's trade deficit declined mainly on non-recurring aircraft orders.
As all new data are lagging indicators markets could also get strong headwinds from hurricane Dennis which has ploughed exactly through that area of the Mexican gulf where US oil companies expect to find more oil on the weekend. The hurricane could disrupt oil supplies from this region and burden insurance companies.
This Week's Data
C = Consensus; L = Last
Import Prices June: C 1.2 %; L minus 1.3 %.
Export Prices June: C none, L 1.2 %.
Trade Deficit May: C 57.5 billion dollars; L minus 57 billion
Treasury Budget: C 23 billion dollars, L minus 35.5 billion.
CPI June: C plus 0.2 %; L minus 0.1 %.
Jobless Claims: C 323,000; L 319,000.
Retail Sales June: C plus 1.0 %; L minus 0.5 %.
Retail Sales ex Autos: C plus 0.6 %; L minus 0.2 %.
PPI June: C plus 0.4 %; L minus 0.6 %.
PPI core: C 0.1 %; L 0.1 %.
Capacity Utilization June: C 79.6 %; L 79.4 %.
Industrial Production June: C 0.4 %; L 0.4 %.
Michigan Consumer Sentiment July: C 95.0; L 96.0.
NOTE I: All consensus estimates from Bloomberg.
NOTE II: So called "core" prices are not included as The Prudent Investor 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 commuting less to work.


Wikinvest Wire