The Day Ahead: Markets Upbeat Ahead of Retail Sales, PPI
Treasury yields are backing up and equity futures are looking to open higher despite two downgrades on French banks from Moody's and warnings from China that it wasn't coming to Europe's rescue.
The 10-year Treasury yield is one basi points up at 2.0132%, the two-year yield is a basis point higher at 0.21% and the 30-year yield is two basis points firmer 3.34%.
S&P 500 futures are 9.8 points higher (+0.84%) at 1,175.50 and Dow futures are 79 points higher (+0.72%) at 11,100. Despite choppy trading, the S&P actually gained 0.91% on Monday and Tuesday, rising 10.6 points.
"The European debt saga remains front and centre," said BMO Capital Markets. "After rumors of BRICs buying of European sovereign debt provided a lift to markets yesterday, China's Premier Wen said that his country won't bail out Europe. He said that Western economies need to stabilize their debts and deficits. China remains open to buying some debt but Wen noted that China will contribute by continuing to grow solidly, adding to global growth."
The two French banks are Credit Agricole and Societe Generale - both were downgraded for their exposure to Greek debt.
In fresh data, the MBA reported that mortgage applications for new purchases rose for a third week in a row, which BMO says hasn't occurred since late 2010.
Also, euro area Industrial production increased by a weaker-than-anticipated 1% in July. Economists had been expecting a 1.5% bump.
Light crude oil fell 0.59% overnight to $89.70 per barrel, while gold prices rose 0.42% to $1,837.80
Key Events Today:
8:30 - The Producer Price Index is anticipated to be cut by 0.1% in August, following a 0.2% gain in July and a 0.4% cutback in June. The core index, which excludes volatile oil and food prices, is forecast to rise 0.2% following gains of 0.4% and 0.3%.
The expected drop in prices is due mostly to a steep drop in energy prices, while food prices are expected to remain elevated.
"Commodities prices beat a hasty retreat in August, as flagging economic conditions in the US, China, and Brazil provided something of a demand-side shock to the energy and industrial metals sectors," said Janney Capital Markets. "That's good news for producers, who have generally found some traction in passing along early 2011 cost increase onto consumers and can now save a few pennies from falling input costs."
8:30 - While consumer confidence fell to multi-year lows in August, economists believe Retail Sales were fairly healthy thanks to back-to-school spending and preparations for Hurricane Irene. The median estimate is a 0.2% increase, with predictions ranging from a 0.3% drop to a 0.6% jump. July reported a 0.5% uptick, while June saw sales grow 0.3%.
"Building materials and garden supply stores should rebound in August since many communities along the East coast prepared for Hurricane Irene, and needed to make repairs in its aftermath - a double bump up," said IHS Global Insight. The forecasting firm said retail sales excluding auto sales should grow 0.4%.
"We think there were some important spending shifts due to the storm, including a pullback at restaurants," added Citigroup. "But this likely was offset by slightly higher purchases at grocery and drug stores and front-loaded purchases of gasoline. Large retail chains and motor vehicle dealerships reported healthy sales right through the storm and aftermath."
Citi's estimate is double the consensus at 0.4%. Such a gain, they said, would put consumer spending on track for a 2.5% gain in the third quarter.
10:00 - Business Inventories are forecast to grow at a 0.5% pace in July, following a 0.3% pickup in June a 0.9% leap in May.
Citigroup said the gain should be "healthy" and noted inventories are likely to "increase substantially" later this year "when auto dealers can finally restock lots."
Nomura Global Economics added: "Upside risk to expectations could come in the form of higher energy prices and inventory building of motor vehicles as supply opened up from Japan."
- Treasury Auctions:
- 1:00 - 30-Year Bonds