The Day Ahead: Equities Looking for Fourth Straight Gain
Markets are looking to push upwards for a fourth consecutive day ahead of several economic releases this morning. Two hours before the open equities are clearly looking up with Dow futures 25 points higher at 10,433 and S&P 500 futures up 4.50 points at 1,118.00.
WTI crude oil is below the $75 per barrel mark but has inched up 10 cents overnight to $74.59. In minor contrast, Spot Gold is down 3 cents to $1083.97 per ounce.
In case you missed it, Treasury Secretary Tim Geithner told NPR last night that economic growth is “accelerating now in the fourth quarter.” He said consumers are spending more, businesses are beginning to invest again, and the risk of a W-shaped recession was mild.
"We are not going to have a second wave of financial crisis," Geithner said. "We cannot afford to let the country live again with a risk that we are going to have another series of events like we had last year. That is not something that is acceptable."
On the downside, he noted that banks are not lending enough and that recovery will not be immediate. "We were in a very deep hole and it is going to take a long time to repair the damage done to confidence," he said.
Key Events Today:
8:30 ― The Personal Income & Outlays survey provides data on income, spending, and inflation. In November analysts look for gains in both income (+0.5%) and spending (+0.65) while inflation is set to rise a benign 0.1%. That’s not bad for retailers staring at the data in hopes for an optimistic holiday spending period.
“Based on the large increase in November retail sales, personal consumption expenditures ― which are broader, covering spending on services ― should be up a healthy 0.7%, the second such gain in row,” said economists at Deutsche Bank. “We estimate current quarter consumer spending at 3%, about the same as last quarter’s 2.9% pace.”
“Looking forward,” analysts from BBVA added, “personal income is beginning to recover from its decline in the beginning of the year. While levels remain low, the change in trend is expected to inspire consumer confidence, which will 20 support the resumption of demand.
In the nonfarm payrolls employment report, November’s average workweek increased by 0.6% and hourly earnings were up 0.1%. “These gains should translate into solid gains in private wages and salaries in the personal income accounts,” write economists at IHS.
As for inflation, IHS notes that the core PCE measure should stay “well inside the Fed's comfort zone” at +1.5% year-on-year.
8:30 ― Consumer Sentiment jumped beyond expectations in the preliminary report and analysts don’t see any reason for change in the final reading. The Reuters/U of Michigan survey climbed from 67.4 in November to 73.4 ― the gain was mostly due to a rise in the current conditions index, a predictable response to last month’s employment report and hey, maybe a little seasonal cheer too.
“As the national economic recovery continues and job losses diminish, consumers are becoming more optimistic about their finances and prospects for the year ahead,” write economists from IHS Global Insight. “Price discounts by retailers throughout the holiday shopping season are contributing to favorable assessments of buying conditions.”
10:00 ― New Home Sales climbed by 6.2% to 430k annualized in October. Predictions for November are less optimistic but the trend is at least in the same direction. Forecasters expect a pace of 440k, and the overhang of new supply ― currently at the lowest level in nearly four decades ― should shrink from the 6.7 months of supply.
Analysts from Nomura said that sales remain “extremely low” and, contrary to the consensus view, they look for the annualized pace could to 422k.
“By region, sales in the South look most susceptible to a decline. Sales of new homes in the South rose by 23% in October - their largest one-month gain since 1995,” they wrote. “Beyond this temporary ‘payback’ we believe new home sales remain on an upward trajectory.”