The Week Ahead: Treasury Auctions, Bernanke, Retail Sales, Consumer Credit on Thin Calendar

The relatively slow week ahead should give financial markets plenty of time to digest Friday’s employment news, which saw the nation’s unemployment rate fall to 10.0% as just 11,000 jobs were lost in the month ― the smallest monthly decline since December 2007.

Key data doesn’t hit markets until Thursday so lots of attention will be put on Ben Bernanke’s Monday speech.

The dollar rallied on the jobs report and this morning those gains have been extended to a one-month high. The dollar is gaining against commodity currencies and the euro is below $1.48, though no progress has been made against the yen.

In contrast to the dollar, equities are falling alongside oil prices and gold.

Two hours before the week’s opening bell, the Dow is 33 points lower at 10,367 while the S&P 500 is 4 points lower a5 1,104. WTI Crude oil is 64 cents lower at $74.83 per barrel and Spot Gold is trading $21.35 down to $1,140.05.

In addition to economic data this week, the UN’s Climate Change Conference begins in Copenhagen on Monday and runs until December 18. 

Key Releases This Week:

Monday:

12:00 ― Ben Bernanke, chairman of the Federal Reserve, speaks to the Economic Club of Washington, DC.

“After last week’s roasting at his Senate confirmation hearing, Chairman Bernanke should face a friendlier crowd at the Economic Club of Washington,” said Sal Guatieri from BMO. “He will likely affirm that the recovery is progressing at a modest rate, and that high unemployment and subdued inflation pressures/expectations warrant exceptionally low rates for an extended period.”

3:00 ― The economy cannot expand if consumers don’t have access to credit, and in 12 of the past 14 months Consumer Credit has declined. Analysts from Nomura add up the total decline to be about $125 billion and in October analysts expect credit to shrink by an additional $8.8 billion.

“Although borrowing typically declines during recessions, the current drop far exceeds historic norms and suggests households are actively trying to reduce leverage,” Nomura analysts said. “As consumer credit remains high relative to disposable personal income, we expect this trend to continue well into next year.”

Ian Shepherdson from High Frequency Economics, who forecasts a drop of $15 billion, added: “The underlying rate of contraction is still accelerating, despite recent support from the auto clunker program.”

• Treasury Auctions:
• 11:30 ― 3-Month Bills
• 11:30 ― 6-Month Bills

Tuesday:

No major data is released aside from the usual weekly survey of retail sales.

At 10:00 the House Financial Services Committee will hold a hearing on "The Private Sector and Government Response to the Mortgage Foreclosure Crisis"

• Treasury Auctions:
• 11:30 ― 4-Week Bills
• 1:00 ― 3-Year Notes

Wednesday:

10:00 ― Inventory reduction is expected to continue in October’s Wholesale Trade report, marking the 14th straight monthly slashing. The consensus looks for a 0.5% cutback after September’s 0.9% loss. Analyst from Nomura note the ratio of inventories to sales volume “remains above pre-recession levels,” thereby implying that declines will continue to decline “for a few more months.”

• Treasury Auctions:
• 1:00 ― 10-Year Notes

Thursday:

8:30 ― The Trade Balance is expected to be unchanged from the previous month. In September exports rose a healthy 2.9% but imports simply soared 5.8%, expanding the trade deficit to $36.5 billion from $30.7 billion. October’s balance is expected to be the same, though some economists expect imports to thin out somewhat.

“Exports may slip back temporarily after a strong increase in September, mainly on lower aircraft exports. In contrast, we expect imports to move higher to help replenish inventories,” said analysts from IHS Global Insight. “Foreign trade has become a drag on growth, since some of the benefit from the recovery in domestic demand is going to foreign producers.”

8:30 ― Initial Jobless Claims have come in below the 500k threshold for two consecutive weeks, pushing the 4-week average to pre-Lehman crash levels last week. For the week ending December 5 economists looks for 460k claims, 3k above the prior week’s 14-month low. Economists say the weekly numbers need to come in below 400k consistently to indicate job growth in the economy, and with only 11k jobs lost in the November nonfarm payrolls report, that can’t be far off.

“Initial jobless claims have declined for five consecutive weeks and fell by more than 40k over the last two weeks,” said economists from Nomura. “These data rarely move in a uniform direction and we expect a partial reversal in the current week. However, the message from recent claims reports is quite clear: lay-offs in the US economy are tapering off.”

12:45 ― Elizabeth Duke, governor of the Federal Reserve, speaks at a conference held by the Chicago Fed on mortgage foreclosure policy.

2:00 ― The new fiscal year began with a bang as the Treasury said the monthly deficit in October as $176.4 billion. November’s Monthly Budget Statement should be less dramatic but the consensus forecast of a $135.0 billion won’t boost anyone’s optimism that a sustainable fiscal path is anywhere around the corner. Estimates from economists polled by Bloomberg range from -$100 billion to -$170 billion, compared to the 10-year November average shortfall of $68.4 billion (2008: -$165.4 billion).

“Although receipts were weaker across most revenue sources, outlays were likely lower than in November 2008 due to the absence of several one-time payments,” said analysys at Nomura. “For example, this year's outlays will exclude the $76bn in TARP-related payments and $14bn equity investment in Freddie Mac that swelled the deficit last year.”

• Treasury Auctions:
• 1:00 ― 30-Year Bonds

Friday:

8:30 ― The Retail Sales report always gets a lot of attention and this month focus will be even greater as retailers are anxious about holiday sales. Wall Street looks for a 0.9% gain in the month following the 1.4% climb in October and the 2.3% fall in September. Rising gasoline prices should boost sales overall in the month but may leave consumers’ pockets less flush for other purchases.

“If chain store sales are any guide, November dealt a setback to other retailers, notably department stores, luxury goods retailers, and apparel stores,” said analysts at IHS Global Insight. “With job losses continuing, consumers are focused on value shopping, which is benefiting wholesale clubs, discount chains, and drug store chains.”

“November retail sales are expected to post pretty decent growth, helped mainly by an improvement in auto sales and higher gasoline prices,” said Ellen Zentner from BTMU. “In November, auto sales were reported to have increased +4.3%, reaching the highest level since October 2008 (barring the incentive-fueled months of July and August). Average retail gas prices were also up about +2% over the month.”

However, Zentner adds: “But that’s where the good news ends. Take out the help from autos and gas and retail sales are expected to register a scant +0.1% growth rate in November.”

10:00 ― Consumer Sentiment is expected to bounce back slightly after two monthly declines. The Reuters/University of Michigan index is set to advance two points to 69.5 in December. 

Analysts from IHS Global Insight note an upward trajectory in recent sentiment surveys, “thanks to holiday bargains and a recovering stock market. Yet, sentiment remains at a very low level, suggesting that the recovery in consumer markets will be gradual.”

10:00 ― Like its wholesale counterpart from Wednesday, Business Inventories are expected to continue falling in October. The consensus looks for a 0.2% dip, subtracting from 0.4% drawback in September.