The Week Ahead: U.S. Durable Goods

U.S. economic reports are not going to play a big role in market direction next week as volatility continues to rule. In data markets, U.S. durable goods for August and new and existing home sales for September are due for release. Markets will also be interested to hear what Fed Chairman Ben Bernanke and Secretary Treasurer Henry Paulson have to say when they testify before the Senate and Congress during the week.

"The few A-list data releases of any note next week will be tucked away until such time as economic fundamentals have returned from exile on the list of peripheral interests," said economists from the Bank of New York Mellon in a note to clients.

In Canada, markets will receive important data with the release of July retail sales at the start of the week, as well as August's inflation figures. In addition, Bank of Canada Governor Mark Carney will speak at an event in Montreal.

On Friday Sept. 19, global equity markets received a boost following the U.S. Treasury's announcement that it will purchase illiquid assets. Economists from the Bank of New York Mellon explained that markets will be anxious to see the reaction following the Treasury's announcement, and if the details could be hammered out over the weekend.

"Market sentiment will rise or fall on the willingness of US lawmakers to swiftly approve what are believed to be plans for a Resolution Trust Corp-style entity before the Congressional recess (currently scheduled for the end of the month)," they wrote. "As such, much rides on the discussions between senior lawmakers and Messrs Bernanke and Paulson over the weekend in which the finer detail (presumably, including a proposed timetable) of the purported legislation will be discussed."

With data not playing a major role next week, traders will be interested to see if the market will be able to hold the gains made on Friday.

John Glasmann, head trader and managing director at Pacific American Securities, said he is going to take a while to work through all the details from Friday's Treasury announcement. He added he is interested to see the impacts of the two-week ban on short selling.

"When all the shorts are covered and there are only long positions left will there be any buyers? I think there is still too much uncertainly to go aggressively into stocks," he said. "I think you still need to keep some shorts when the game gets a little saner. Will the fundamental buyers come in?"

Although the Treasury's announcement to buy illiquid assets has helped, Glasmann said it is still to be determined how it will affect the consumer.

"I'm very curious as to how this goes down and helps the consumer. It begins and ends with the consumer and housing," he said.

Guy LeBas, fixed income strategist from Janney Montgomery Scott, said volatility will continue to rule bond markets. He added he expects bond yields to remain under pressure as some risk aversion remains in the markets.

"I think yields are a bit high," he said. "The economy still remains weak and we are expecting to see more volatility in bond markets."

Although yields could move lower, LeBas said he doesn't think a 2.0% rate in two-year notes would be a good entry point.

"It's not a bad bet but I don't think it is one that I would want to talk," he said. "Right now you just can't predict the next tape bomb and you don't really know where bond prices are going to go."

John Higgins, an economist at Capital Economics, wrote in a research note that he is expecting bonds to move slightly higher, but all market moves will be limited.

"With confidence slowly returning (in the financial sector at least), and the US Treasury guaranteeing money market mutual fund holdings for the next year, we expect the flight-to-quality bid supporting the front end of the Treasury market to recede a little in coming weeks," he wrote. "Risk appetite is not likely to return quickly, though, given that further failures could still arise among weaker financial institutions deemed not too big to fail."

Looking at Canadian markets, Fergal Smith, managing market strategist for Canada at Action Economics said the data might provide some direction for bonds, but the big event will be Mark Carney's speech on Thursday.

He said he is expecting Carney to soften his tone as markets continue to price in rate hikes through the year.

"The degree of easing priced in by the markets has come off with the Fed's rescue plan and the unwinding of the flight to quality," he said. "There is a good chance he will soften his stance because the degree to volatility in financial markets, has raised risks to the global economic outlook and Carney likes to be proactive," he said.

With Carney expecting to soften his tone on monetary policy, Smith said it might cause Canadian bonds to outperform U.S. bonds. He said he expects the flight to safety move to continue to unwind in the U.S. next week.

All times in EDT.

Monday:

Important Canadian data will be released with July retail sales. Economists expect retail sales to have risen 0.3% following June's rise of 0.5%. Core sales, excluding autos, is expected to rise 0.4% following a 1.4% rise in June.

8:30 CA Retail Sales (M/M) July +0.3% Prior: +0.5%

8:30 CA Retail Sales Less Autos (M/M) July Exp: +0.4% Prior: +1.4%

13:00 US Treasury to Sell $27B 3-Month Bills

13:00 US Treasury to Sell $27B 6-Month Bills

Tuesday:

The spotlight is once again on Canada with the release of August's inflation data. Monthly core Canadian CPI is forecasted to rise 0.1% following the 0.1% increase in July. The core annualized rate is also expected to rise 1.6% following a previous rise of 1.5%.

Markets will also be interested to hear what Secretary Treasurer Henry Paulson and Fed Chairman Ben Bernanke have to say when they testify before the Senate on the credit turmoil.

7:00 CA Consumer Price Index (M/M) August -0.2% Prior: +0.3%

7:00 CA Consumer Price Index (Y/Y) August Exp: +3.5% Prior: +3.4%

7:00 CA Bank Canada CPI Core (M/M) August Exp: +0.1% Prior: +0.1%

7:00 CA Bank Canada CPI Core (Y/Y) August Exp: +1.6% Prior: +1.5%

10:00 US Richmond Fed Manufacturing Index September -12 Prior: -16

10:00 US House Price Index (M/M) July Exp: -0.2% Prior: 0.0%

10:00 US Paulson, Bernanke Testify on Credit Turmoil at Senate Panel

13:00 US Treasury to Sell $20B 52-Week Bills

13:00 US Treasury to Sell 4-Week Bills

17:00 US ABC Consumer Confidence W/E September Exp: 21 Prior: -41

Wednesday:

Markets will receive more housing numbers with the release of existing U.S. home sales for August. The consensus is calling for a fall to 4.95 million units, down from July's reading of 5 million.

Also, Fed Chairman Ben Bernanke will testify before the Congress Join Economic Committee.

7:00 US MBA Mortgage Applications W/E September 19 Prior: +33.4%

10:00 US Existing Home Sales August Exp: 4.94M Prior: 5.00M

10:00 US Existing Home Sales (M/M) August Exp: -1.2% Prior: +3.1%

10:00 US Bernanke Testifies at Congress's Joint Economic Committee

10:35 US DOE U.S. Crude Oil Inventories W/E September 19 Prior: -6328k

10:35 US DOE U.S. Gasoline Inventories W/E September 19 Prior: -3308k

10:35 US DOE U.S. Distillate Inventory W/E September 19 Prior: -835k

10:35 US DOE U.S. Refinery Utilization W/E September 19 Prior: -0.86%

11:30 US Treasury to Sell $40B 7-Day Cash Management Bills

13:00 US Treasury to Sell 2-Year Notes

Thursday:

The week picks up with the release of U.S. durable goods for August, which are expected to fall 1.5% following July's 1.3% increase. Durable goods ex-transportation is also expected to fall by 0.4% following a previous rise of 0.7% rise

In more data, U.S. new home sales for August will be released and the consensus is calling for sales to come in at 510,000, down from the 515,000 reading in July.

8:30 US Durable Goods Orders August Exp: -1.8% Prior: +1.3%

8:30 US Durables Ex Transportation August Exp: -0.5% Prior: +0.7%

8:30 US Initial Jobless Claims W/E September 20 Exp: +448k Prior: +455k

8:30 US Continuing Claims W/E September 13 Exp: 3505k Prior: 3478k

10:00 US New Home Sales August Exp: 510K Prior: 515K

10:00 US New Home Sales (M/M) August Exp: -1.0% Prior: +2.4%

10:35 US EIA Natural Gas Storage Change W/E September 19 Prior: +67 Bcf

10:40 US Fed's Evans, ECB's Gonzalez-Paramo Give Welcoming Remarks at Chicago International Banking Conference

12:00 US Paulson, Bernanke Testify on Fannie Takeover at House Panel

13:00 CA BOC Governor Mark Carney on Economic Development at the Canadian Club in Montreal

13:00 US Fed's Warsh Speaks at Chicago International Banking Conference

13:00 US Treasury to Sell 5-Year Notes

19:30 US Fed's Fisher Speaks to Investors, Economists in New York

Friday:

The week ends with the final reading of U.S. Q2 GDP and the University of Michigan/Reuters consumer confidence. Annualized U.S. GDP is expected to remain at 3.3%. Consumer sentiment is expected to move lower to a level of 71 following a previous reading of 73.1.

8:30 US GDP (Q/Q) (Annualized) Q2 Final Exp: +3.3% Prior: +3.3%

8:30 US Personal Consumption Q2 Final Exp: +1.7% Prior: +1.7%

8:30 US GDP Price Index Q2 Final Exp: +1.2% Prior: +1.2%

8:30 US Core PCE (Q/Q) Q2 Final +2.1% Prior: +2.1%

10:00 US University of Michigan/Reuters Confidence September Final Exp: 70.5 Prior: 73.1

10:00 US St. Louis Fed's Bullard to Speak at Tennessee Economic Meeting

By Neils Christensen and edited by Sarah Sussman
©CEP News Ltd. 2008