The Day Ahead: Busy Session of Data. Markets Ready to React

The day ahead is filled with data and fedspeak. Both stocks and bonds are ready to react to whatever crosses wires. Ninety minutes before the bell benchmark interest rates are inching higher while equity futures indicate a positive open on Wall Street.

S&P 500 futures are +5.75 at 1142.75 and Dow futures are +42 at 10,765. The S&P 500 closed 9.1% higher last month, making it the best September session in seven decades according to BMO Capital Markets. Light crude oil is +1.21% at $80.94 per barrel and gold prices are +0.78% at $1,315.40 per ounce. The US dollar continues to weaken, allowing the Euro to euro to hit a 5.5-month high of 1.374/US$, according to BMO.

The 2-year Treasury note is UNCH at 99-28+ yielding 0.426% and the benchmark 10 year note is -0-08 at 100-23+ yielding 2.54% (+2.9bps). The November FNCL 4.0 is -0-03 at 102-12.

Aside from new economic data, Thomson Reuters also notes the Financial Stability Oversight Council will have their first meeting. 

“The group, created under the law to detect risks to financial markets, is chaired by Treasury Secretary Timothy Geithner, and includes as its members Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chair Mary Shapiro, Federal Deposit Insurance Corp Chair Sheila Bair, and Commodity Futures Trading Commission Chairman Gary Gensler. 

Key Events Today:

8:30 ― Personal Income & Outlays report for August is expected to show income rise 0.3% following 0.2% in July and a flat reading in June. Spending is expected to advance 0.4% for the second month in a row after a flat reading in June. Inflation is set to remain tame with a 0.1% uptick, compared with a 0.2% increase a month before and a 0.1% decline in June.

“Personal income has rebounded steadily since last year and is now up 3.0% annualized year-to-date,” said economists at Deutsche Bank. “This trend should continue as long as the labor market continues to improve. … Particular attention should be paid to the core PCE deflator, which is up 1.4% over the past 12 months and which will hold steady at 1.4% if our August forecast is correct. Still, the Fed is likely to worry about further disinflation.”

8:30 ― William Dudley, president of the New York Fed, speaks to the Society of American Business Editors and Writers in New York.

9:55 ― The preliminary Consumer Sentiment report surprised some by shedding 2.1 points to 66.6 earlier this month. The decline was mostly related to a downfall in the expectations component. The fuller reading is expected to produce similar results with the median estimate at 67.0.

“The various sentiment indices have been roughly stable for the past few months. We expect this trend to continue for the time being,” said economists at Nomura. “Important to watch in this report will be the two measures of inflation expectations, given concerns about possible deflation.”

10:00 ― The ISM Manufacturing Index beat expectations in August by improving nearly a point to 56.3, reversing three months of slowdown and producing a score well above the 50-level indicating growth. The index has remained above 50 for the previous 12 months and September should be no exception, although some pullback is expected  with the median estimate at 54.5. Predictions ranging from 53.0 to 55.5. This would indicate that manufacturing continues to expand but the pace is decelerating.

“In light of the ongoing moderation of ISM new orders over the past three months, we anticipate an additional decline in the headline (54.0 vs. 56.3),” said economists at Deutsche Bank. “We will also focus on the employment series which hit a 27-year high last month. The August ISM survey was one of the catalysts for the recent recovery in equities.”

10:00 ― Construction Spending is anticipated to decline 0.4% in August, a smaller drop than the 1% fall in July or the 0.8% decrease in June. Economists say the decrease will be led by weakness in private residential building, as indicated by recent housing starts data.

“Single-family construction will be a big negative, dropping as much as 4%, based on recent declines in single-family housing starts,” said economists at IHS Global Insight.  “We are projecting a 1% drop in nonresidential construction. The bigger question about this category is whether we will see another sizable downward revision for the prior three months. Although public construction dropped in July, we are expecting, at worst, a flat reading for August, since infrastructure spending is still holding up the numbers.”

11:30 ― Federal Reserve Bank Chicago's Evans speaks on the Future of Monetary Policy at Bank of France event

4:00  ― Federal Reserve Bank of Dallas President Richard Fisher speaks on "Globalization, Economic Recovery and Monetary Policy" before the Vancouver Board of Trade Distinguished Speaker Series. Audience Q&A expected. Media Q&A TBD.

ISSUANCE
* AWAS, $600m 6-year [guidance 6.75-7%]; GS/MS/DB
* Dubai, USD deal expected; DB/HSBC/SCB
* Continental Trustees, $200m 30-year; CS/BBVA
* Qatar Telecom, benchmark offering;Barc/DB/MUFJ/QNB/StanChart/RBS
* Lancer Fin, $275m 6-year rumored
* CBA, benchmark bond rumored; JPM