The Week Ahead:Inflation Data, Housing Releases, FOMC Meeting on Busy Econ Calendar

Two hours before the bell sounds Dow futures are looking to open 39 points higher at 10,462 and S&P 500 futures are up 5 points to 1,108.

As the US dollar index starts the week a bit softer oil has fallen below the $70 per barrel threshold: WTI Crude is trading 40 cents lower at $69.47 per barrel. Meantime, Spot Gold is up $2.95 to $1,118.35.

Over the weekend, former Federal Reserve Chairman Greenspan told NBC: “It seems to me virtually inevitable – if nothing else were to happen – that employment would start to come back fairly quickly.”

Meanwhile, President Obama told 60 Minutes he was frustrated that “fat-cat bankers” are going home with large bonuses and fighting government efforts to revamp financial regulation. 

Looking to data this week, Monday and Friday have no data releases but the other three days are packed. Industrial production, housing starts, and inflation data are the important surveys this week, while the Fed’s monetary policy meeting is sure to have investors chattering all week.

Key Events This Week: 

Monday:

No major data released.

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

Tuesday:

8:30 ― The Producer Price Index advanced 0.3% in October as rising energy and food prices kicked up the headline. With those elements stripped out the core index told an opposing story of prices falling 0.6%. For November the trend is similar: the headline index is set to increase 1.0% but core prices will only inch forward by 0.2%. Forecasts for the headline range from +0.5% to +1.2%, and flat to +0.4% for the core.

“Gasoline prices rose in dollar terms and the rise will be amplified in the PPI, because the seasonal adjustment process expects prices to fall,” said economists at IHS Global Insight, who look for prices to rise 1.6% on account of a “double-digit surge in gasoline prices.

Economists from BMO expect to see a more tepid headline. “Producer prices are projected to jump 0.7% in November, nearly completely switching signs of the annual change to +1.6% y/y from -1.9% in October and ending its 11-month run in negative territory. A year ago, energy prices were plummeting in double digits as the global financial crisis flared. Excluding food and energy, the PPI is expected to be flat m/m, and unchanged at +0.7% y/y.”

8:30 ― The Empire State Manufacturing Index is expected to see growth for the fifth consecutive month in December. Wall Street expects the index, which fell 11 points in November, to improve slightly from a 23.5 reading to 25.0, with forecasts ranging widely from 15.6 to 27.0, according to Bloomberg.

“The Empire State index fell sharply in November following several months of strong gains,” said analysts from Nomura. “Given that it remains above other survey-based measures of manufacturing activity, as well as an average of its own components, we expect another decline this month to 20.0.”

9:00 ― The Treasury International Capital report, which measures the flows of financial instruments to and from the US, is expected to “reveal several durable trends in foreign purchases of US securities,” said analysts from Nomura. 

“First, net inflows into Treasuries remain strong, with overseas accounts continuing to finance a large share of net issuance. Second, foreign investors are purchasing few agency securities. Foreign official institutions in particular have been net sellers of agencies in every month since June 2008. Third, net inflows into corporate bonds (including asset-backed securities) have been close to zero, but net purchases of equities have increased.” 

9:15 ― A positive Industrial Production report could set the tone for the entire week.  Markets are expecting the report, which saw just a 0.1% increase in October, to pull forward by 0.6% in November as productivity per worker rises. This would mark the fifth straight month of growth.

“Hours worked in manufacturing surged 0.4% in November, the auto industry assembled more vehicles, and there appear to be no major negatives for the month,” said forecasters from IHS Global Insight. “Electricity could be a wildcard as industry association data suggests a rise in production while the warm weather suggests output should have fallen back. Natural gas production surely did decline due to the warm weather. Overall, we assume little change in utility output.” 

1:00 ― The Homebuilder Sentiment Survey indicates general improvement when the score is above 50. The current reading of 17 is far, far below that, so few analysts have their hopes tied to this survey. However, sentiment could have risen after Congress extended the tax incentive program for first-time homebuyers.

“After flattening out through October and November, December’s reading is not expected to break new ground,” said economists at BMO.

• Treasury Auctions:
• 11:30 ― 4-Week Bills
• 11:30 ― 52-Week Bills

Wednesday:

8:30 ― Inflation remains on the policy backburner for good reason. The Consumer Price Index showed core prices at +0.2% in October and analysts look for  a +0.2% reading in November. Higher gasoline prices are expected to push the headline index up 0.4% in the month following a +0.3% read.

“Inflation is not a problem and we do not expect it to become one any time soon, but deflation risks have greatly diminished,” said analysts from IHS Global Insight. 

8:30 ― For those in real estate the Housing Starts & Building Permits report is the key release this week. The number will be closely watched after October’s survey saw a 10.6% downturn in the month. Most analysts look for a sharp rebound. The annualized pace of sales is currently 529k; forecasters look for the pace to be 575k in November.

“The drop in October housing starts really underscored just how much the fragile housing recovery is relying on government support,” said Ellen Zentner from BTMU. “Our forecast calling for such a large jump in November is nothing more than the assumption that the rate of home building resumed its prior pace as soon as Congress announced on November 5th the extension, and expansion, of the homebuyer tax credit through April 30th next year.”

Forecasters from Nomura add: “If activity in the single-family sector deteriorates again it would be a worrying sign for the housing market outlook. Our forecast for starts, while above consensus [580k], is still below the level reached in September. We therefore see additional upside risks to our more optimistic call.”

2:15 ― The FOMC Meeting Announcement will, as always, get plenty of media attention this week, but forecasters appear unanimous is expecting no policy change. The Fed Funds rate will, of course, stay within the zero to 0.25% band, and modest improvements aside the bank’s language won’t be dramatically different.

Economists at Deutsche Bank expect the Fed to continue “to upgrade the economic assessment in the meeting statement—albeit moderately so. The language from the prior statement indicating: ‘Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up’ need not be changed. In terms of price pressures, we expect the Fed to again reuse the boilerplate inflation language: ‘With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.’”

Analysts from Nomura add: “The only part of the statement that may be revised, in our view, is the description of economic activity. In particular, non-auto consumer spending has been strong over the past few months and the statement still sounds downbeat about household spending.’”

Thursday:

In addition to data news, markets will be watching when the Senate Banking Committee hold its confirmation vote on Fed Chairman Ben Bernanke. He’s widely expected to be re-confirmed.

8:30 ― Jobless Claims moderated for five consecutive weeks before the minor uptick reported last Thursday. For the week ending Dec. 12 economists look for the improvement to return with the consensus expecting 465k claims (vs. 474k).

“Our models continue to predict that weekly initial jobless claims should fall to the pre-Lehman level (of below 425.0k) before mid-January 2010, and that weekly initial jobless claims should fall to the pre-Bear Stearns level (of below 365.0k) before mid-June 2010,” wrote John Herrmann from Herrmann Forecasting. ‘Hence, our models predict above-consensus job (non-farm) growth and below-consensus unemployment rate in 2010.”

8:30 ― Leading Economic Indicators, a composite index aiming to track turning points in the economy, will report a slower reduction in the jobs market in November. That will help the composite see its eighth straight monthly gain. Expectations are pretty high, with the Street consensus at +0.7% this month versus +0.3% in October. Some forecasts are as high as +0.9%.

10:00 ― The Philadelphia Fed Survey will give more context to Tuesday’s report from New York. Forecasters expect no change from the prior month, but that’s not a bad thing as the index was well into growth mode at +16.7 last month.

“Although most firms have seen growth in production and new orders, they also note that the level of activity remains quite weak,” noted analysts from Nomura. “For example, the Fed's latest Beige Book said manufacturers in the Philadelphia Fed district reported that ‘activity is still down compared with last year’ and that the improvement to date is a ‘slight uptick’.”

Friday:

No major data released.