The Day Ahead: Stocks Higher Before Retail Sales Data

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With the dollar remaining weak, investors are finding other safe havens to store their money, which helped drive the price of oil past $75 for the first time in a year this morning. 

“Oil is the anti-dollar, like gold, and I think investors who are scared by what could happen to the dollar in the future are using those dollars to buy dollar-denominated 'real' assets that should appreciate as the greenback tanks,” said Sean Brodrick, natural-resources analyst at UncommonWisdomDaily.com.

The 5-day oil rally was extended on Tuesday when OPEC raised its near- and medium-term forecast for demand by 200k barrels per day.

Meanwhile, global equities are blazing this morning after computer chip-maker Intel posted a 17% jump in third-quarter sales after the closing bell yesterday. The $9.4 billion in profits easily beat the Street’s forecasts, and Intel predicted continued growth for the holiday period in Q4. 

The “results underscore that computing is essential to people's lives, proving the importance of technology innovation in leading an economic recovery,” said Intel’s Paul S. Otellini in a conference call, according to Business Week.

China’s Shanghai Index closed 1.17% up on the day and shares in Hong Kong closed 1.95% higher. London’s FTSE 100 was recently up 2.03%, while the French CAC-40 was up 2.12%. 

The global resurgence in equities is helping to push US equities futures higher this morning (+1.3% to +1.5%) after a seven-day rally came to a halt yesterday. Major data from the retail sector an hour before the open has the potential to extend those gains or erase them altogether. Analysts are expecting the headline to dip in September after the temporary boost from the cash-for-clunkers program in August.

Ian Shepherdson from High Frequency Economics pointed out that there’s “plenty of scope for surprise” in the headline, as the unit volume numbers “do not always translate perfectly into the dollar value data in the sales report.” He added that higher food and gas sales should boost the ex-autos figure to +0.3%. “That’s hardly great, but the worst is over,” he noted.

Key Events Today:

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% setback 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.

Economists from RDQ said a sharper 1.3% reduction could be seen, but they noted that this particular report doesn’t factor into GDP. The Commerce Department uses industry sources instead.

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. Given the host of recent Fed speakers over the last three weeks, including a dovish talk from Vice Chairman Kohn yesterday, it’s unlikely the minutes will say anything to surprise markets.

 

  • Treasury Auctions:
  • 1:00 ― 4-Week Bills