The Day Ahead: Busy First Day of Fourth Quarter
The fourth quarter begins today with a torrent of fresh data, plus speeches from Fed chairman Ben Bernanke and Atlanta Fed president Sandra Pianalto.
Ahead of the data, a slowdown in global equity markets has the US futures market looking downwards, while the dollar is looking stronger and the Treasury market is stable.
“Despite yesterday’s mild setback, the Dow just racked up its best quarter in 11 years and best third quarter since 1938 with a 15% advance,” notes Sal Guatieri from BMO Capital Markets. “For an encore, less-bad news and economic stabilization probably won’t cut it any longer,” he added. “The market will need to see solid evidence of a sustained recovery.”
Looking ahead, it’s worth keeping in mind the wise words of Mark Twain.
“October. This is one of the peculiarly dangerous months to speculate in stocks,” he once wrote. “The other are July, January, September, April, November, May, March, June, December, August, and February.”
Key Releases Today:
8:30 ― The Personal Income & Outlays report is expected to show that wages remain stagnant, but despite this, spending should have increased substantially, in large part because of the success of the cash-f0r-clunkers program. Median estimates look for wages and core prices to both inch up 0.1%, while total consumer spending should jump 1.1%.
“July marked the return to the true underlying personal income figures, devoid of the huge government transfer payments that skewed the May and June data. In July, personal income was flat and we expect only a +0.1 percent gain in August.
“Even though job loss is slowing, the work week remains near its historical low and wages remain under severe pressure,” said Ellen Zentner, senior macroeconomist at BTMU. She expects consumption to beat the consensus with a 1.3% gain, which would be “the largest monthly jump since the 0% financing incentive that caused vehicle sales to spike in October 2001.”
8:30 ― Jobless Claims have been moderating for three consecutive weeks but analysts aren’t yet calling the improvement a sustainable trend. There are expected to be 537k new claims for the week ending Sept. 26, up from 530k in the week before. Even so, data in September is already pointing to the lowest drop in payrolls since July 2008.
9:00 ― Federal Reserve chairman Ben Bernanke testifies on regulatory reform to the House Committee on Financial Services.
10:00 ― Forecasters expect the closely-watched ISM Manufacturing Survey to see its best results in three years this month. In August it hit growth mode for the first time since the start of the recession, beating expectations with a score of 52.9 (50+ indicates expansion.) Regional surveys points to modest improvement to 53.5 in September.
Analysts from IHS Global Insight said it will “creep higher,” but outsized gains seen in July and August are unlikely to be repeated. “The index should remain solidly above the neutral 50 reading, at 53.5, but just not add much to August's 52.9 reading,” they added.
10:00 ― As far as markets go, the Construction Spending report will take a backseat to the ISM survey, but for those in real estate the index provides a broad picture of new projects in the residential, non-residential, and public sectors. Unfortunately, that picture isn’t yet pretty. Spending should decline by 0.1% in August following a 0.2% decrease in July. Economists looks for single-family home construction to rise, but commercial and nonresidential to decline.
10:00 ― After the surprisingly weak existing home sales report last week (the headline fell 2.7%), analysts will be looking closely at the Pending Home Sales Index for August. The report looks at contracts that have been signed but not finalized, thereby acting as a leading indicator of actual sales in the following month or two.
11:00 ― The Treasury Department announces the terms of next week's 3yr/10yr/30y/10yr TIPS debt auctions.
5:30 ― Sandra Pianalto, President of the Atlanta Fed, speaks to Market News International seminar in New York.