The Week Ahead: Treasury Auctions, Retail Sales, Inflation, Production Data
Equity futures are firmly higher this morning as global markets react to December data from China showed exports jumping 17.7% compared to one year ago (versus forecasts for only 5%). With the data China surpassed Germany to become world’s largest exporter. Moreover, imports surged by 55.9% y-o-y in December.
One hour before the bell Dow futures are 41.00 points higher at 10,607 and S&P 500 futures are up 4.80 points to 1,146.
Commodities are also on the rise with WTI Crude oil trading $1.04 higher at $83.79 per barrel and Spot Gold $20.27 higher at $1158.52.
The broad gains signify investor confidence as the Q4 earnings season kicks off.
Key Events This Week:
Monday:
12:30 ― Dennis Lockhart, president of the Atlanta Fed, speaks on the economy to the Rotary Club of Atlanta.
Treasury Auctions:
- 1:00 ― 10-year TIPS
Tuesday:
8:30 ― The monthly deficit in the Trade Balance is expected to widen in November. Exports are expected to pick as a global recovery takes advantage of the cheap US dollar but imports are set to rise more rapidly on account of rising domestic demand and more expensive oil. The consensus is for the deficit to be $35.0 billion in the month, a 6.4% bigger than the $32.9 billion gap in October.
“We expect that export growth cooled in November, bringing it closer to what we would consider its underlying trend,” said analysts from Nomura Global Economics. Import growth, in contrast, was quite soft in last month's report and is expected to accelerate. “Looking ahead, we expect the trade balance to be about unchanged over the next several months as strengthening import demand offsets the effect of stronger foreign growth on exports.”
Analysts from IHS Global Insight, who look for a $37 billion deficit, said September and October “both saw exceptionally rapid increases in exports, and though we don't doubt that the export surge has further to run, we suspect that there will be a pause in November.” They added, “we expect imports to move higher, partly because of higher oil prices, and partly because U.S. firms are now looking to rebuild their inventories.”
Treasury Auctions:
- 1:00 ― 3-Year Notes
Wednesday:
12:30 ― Charles Evans, president of the Chicago Fed, delivers a speech on the economy and monetary policy.
2:00 ― It may sound surprising but the Treasury’s Budget Statement in December is expected to be smaller than the 5-year average. According to Bloomberg News the monthly debt in December has been $95.3 billion in the past half-decade, whereas the consensus this time around is “just” $92.0 billion. Estimates range from $57 billion to $106 billion.
2:00 ― The Federal Reserve’s anecdotal summary of economic conditions across the 12 regions, the Beige Book, should show the economy has been growing inconsistently in the past 6 weeks. Even with GDP picking up in the final half of 2009, some industries continue to struggle, unemployment is rampant, and the outlook is far from certain.
“In 2002, Beige Books mostly took a cautious tone even as GDP growth picked up after the 2001 recession,” noted analysts at Nomura. “We expect a similar outcome this year, with firms describing positive but weak growth, and with some sectors (e.g. commercial construction) in outright decline.”
Ian Shepherdson of High Frequency Economics added: “Expect to read about continued patchy recovery, with no upward pressure on prices.”
Treasury Auctions:
- 1:00 ― 10-Year Notes
Thursday:
8:30 ― Retail sales for December are the key report this week. Following a robust 1.3% gain in November expectations are wide ranging from +0.3% to 1.2%, with the consensus at +0.4%. Exclude auto and the forecast is sliced in half.
Economists from BBVA note that the year will end with three straight months of growth. “Furthermore, sales levels will come in above those of the previous year for the second consecutive month, indicating that demand is recovering from its low levels in early 2009.”
Indeed, BTMU’s Ellen Zentner notes that “holiday same-store sales were up +1.5 percent in 2009 compared to a drop of -5.0 percent in 2008.” She added that “December same-store sales results revealed a last-minute surge of holiday shopping that helped chain stores pull off a decent holiday season rebound.”
8:30 ― Economists are expecting little change in initial Jobless Claims for the week ending Jan. 9. The consensus view is for 437k claims, 4k above the prior week’s level but 13k below the four-week average. Not until claims come in below 400k consistently will the survey be indicative of growth in the labor market overall but the trend has at least been in the right direction for several months now.
“On a four-week moving average basis, claims have now returned to their ‘pre-Lehman’ level of 450,000,” noted analysts from Nomura. “We believe claims could bounce higher this week due to their normal week-to-week volatility. However, the trend in this important indicator appears to be heading lower.”
Ellen Zentner from BTMU also said: “The downward trend in claims has been fairly consistent since March and it won't take long to get down to, and below, the 400K mark.”
10:00 ― Business Inventories are expected to increase by 0.2% in November, adding to the 0.2% advance in October which was the first positive sign in 14 months. A build-up in inventories will help GDP growth.
Treasury Auctions
- 30-year bond auctions
Friday:
8:30 ― It seems no matter how long the Federal Reserve keeps policy loose, the Consumer Price Index remains benign. In December the both the headline number and the core (which excludes volatile food and energy prices) are set to rise just 0.1%, and in each case predictions range from flat to 0.2%. A month before the core number was flat while the headline jumped o.4% but the latter was due almost solely to energy costs.
“High unemployment and weak demand continued to keep inflationary pressures in check through the end of 2009,” said analysts at IHS Global Insight. “Energy prices remained silent through the holiday season, though food prices should record a slight gain. . . . Barring a highly improbable surge, the biggest story from the upcoming report is bound to be the annual decline of the CPI in 2009, which would be its first drop in 54 years.”
8:30 ― The decade’s first regional look at manufacturing is expected to show a rebound from a sluggish December. The Empire State Manufacturing Survey unexpectedly took a dip to +2.6 to close the year after cruising as high as +34.6 just two months before (levels above zero indicate growth). For January economists are looking for a 13.0 score, which isn’t inspiring but at least it’s a clear growth marker.
9:15 ― All analysts are expecting Industrial Production to post a second consecutive month of growth in December but few are expecting the report to equal November’s 0.8% jump. The consensus is to see a 0.6% rise, which isn’t bad ― the problem is hat hours worked, which is also a forecaster of employment, fell 0.4% in December.
“Businesses are beginning to rebuild their inventories, which is stimulating demand,” said economists at BBVA. “In particular, high tech industrial production is expected to increase for the third month in a row, which could indicate that capital spending on equipment and software could rise again in 4Q09.”
10:00 ― With unemployment still in double-digits, expectations for Consumer Sentiment remain modest despite sizable stock market gains and lots of talk about the recession ending. The Reuters/U of Michigan is expected to rise 1.5 points to 74 in January, with expectations ranging from 72.5 to 75.0.
Still, the modest gain is consistent with a two-year apex, noted economists at IHS Global Insight. “Sentiment usually improves with the start of a new year, and 2010 should be no exception,” they added. “A rising stock market is restoring household wealth, the economy is growing, and employment is near a turning point. Consumers are still very cautious, but their confidence is gradually rising.”