The Day Ahead: Retail Sales & Consumer Sentiment
The Treasury curve flattened overnight and equities are prepping for a session in the black after Google posted stronger than results late Thursday.
The 10-year Treasury yield is four basis points up at 2.22% and the 30-year yield is five basis points higher at 3.20%. The two-year yield, however, is a basis point firmer at 0.28%.
S&P 500 futures are 8.9 points higher (+0.74%) at 1,206.80 and Dow futures are 82 points higher (+0.72%) at 11,474.
"Google trounced earnings and revenue expectations last night, stirring some optimism that corporate profits will hold up this earnings season," said BMO Capital Markets. "That appears to be making up for JPMorgan's lacklustre quarter."
So far this month, the S&P has rebounded by 6.38% and the Dow has climbed 5.17%.
In Asia, China's Shanghai index fell 0.34%, shares in Hong Kong dropped 1.36%, and Japan's Nikkei 225 finished 0.85% lower.
According to BMO, Chinese Premier Wen Jiabao warned Friday that "uncertainties in the global economy are increasing" and he blamed "rising protectionism" for "clouding the world's recovery."
Europe's ongoing session, however, has the FTSE 100 gaining 0.78% and France's CAC-40 is up 0.75%, despite Spain getting downgraded a notch by S&P to AA-.
The S&P report said: "Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners."
Light crude oil rose 1.37% overnight to $85.39 per barrel, while gold prices moved up 0.41% to $1,675 per ounce.
Key Events Today:
8:30 - Retail Sales (actual came in at +1.1%), the key data point this week, could provide some support for markets if economists are correct in assuming a 0.6% uptick in September. The August report came in flat; spending growth was held back by declines at auto dealerships, as well as in clothing, department stores, and restaurants.
September should reverse the trend as auto dealers posted 13 million light vehicle sales, versus August's 12.1 million units, according to IHS Global Insight.
"Retail sales excluding autos are expected to rise 0.4%, due to growth in sales at building materials and garden supply stores and gasoline stations," IHS Global said. "Retail sales used to estimate personal spending - total retail sales less autos, less building materials, less gasoline - are expected to increase only 0.2%, not a dramatic rise, but still better than August, which was flat. Consumer confidence is still in recession territory, but spending is holding up better than sentiment."
Vehicle sales are the largest single category of retail sales, reminded Janney Capital Markets. The firm said the increase in car sales will be the brightest spot in September retail sales, while the other items are mixed.
"Early returns from retailers point towards a 1% increase in same store sales, which is a healthy performance for what's typically an off month between back-to-school and the holiday seasons," Janney said. "The same store sales performance is all the more impressive considering weather trends in the beginning of the month, which featured the after-math of Hurricane Irene hitting the population-heavy areas in the northeast as well as a downright obscene heat wave across the most populated areas of the south."
9:55 - Consumer Sentiment should remain at abysmal levels in October. The index last ticked up to 59.4 from 55.7, but remains roughly 25% lower than before the summer. The median estimate anticipates a score of 60 this month, a recessionary level.
"Consumer sentiment fell sharply during the summer months, and consumers face considerable headwinds such as poor job prospects, declining household net worth, higher poverty rates, and rising prices," said IHS Global Insight, predicting a slightly higher than consensus estimate. "However, consumer confidence has been slowly improving since August."
"Sentiment surveys seem to be taking their cue from the loss in equity wealth," added Citigroup. They noted that sentiment has largely decoupled from spending behavior, thankfully.
"At the same time consumers report little optimism, they bought more motor vehicles and merchandise at large retail outlets."
10:00 - Business Inventories climbed by a flatter than expected 0.4% in July as sales grew 0.7% and the inventory to sales ratio fell a basis point to 1.27. The falling ratio suggests businesses aren't piling up inventories and will continue to purchase supplies so long as the economy remains growing. The August figure is also expected at 0.4%.
"Inventory building has slowed from a torrid pace earlier in the year," said Nomura Global Economics. "Downside risk to expectations could come in the form of lower energy prices."