Financial Markets Summary For The Week of August 4-8
The FOMC meeting on Wednesday and the personal income/spending report on Monday will shape the upcoming week in US financial markets. Other first tier data to be published during the upcoming week will be the ISM non-manufacturing reports on Tuesday, jobless claims on Thursday and non-farm productivity/unit labor cost report on Friday. The week will see another five days of plentiful earnings reports. Of the large number of firms reporting the releases by AMBAC, MBIA, Freddie Mac and Proctor and Gamble all retain the capacity to move the markets. Due to the FOMC meeting, there will be no Fed speak on during the week of August 4-8
Personal Income and Spending (June) Monday 08:30 AM
We expect to see the impact of the fiscal stimulus begin to ease in June. Our forecast implies that personal spending will advance 0.4% vs. the 0.8% posted in May and personal income should decline -0.2%. More importantly, given the extraordinary run in the cost of oil and gasoline through the month of June, we do expect that real spending should fall back to 0.2% with risk to the downside for the month. Pre fiscal rebate, real spending was anemic and we anticipate that once the effects of the stimulus fade we will
PCE Deflator Monday 08:30 AM
The core PCE deflator should see another 0.3% m/m increase with the y/y advancing 2.3%. The weighting inside the PCE deflator does not give as heavy a weight to shelter as the CPI, thus the recent rise in the cost of services may provide upward pressure on the overall price environment in the Fed's preferred measure of inflation. Thus we see the risk to core pricing as being to the upside.
Factory Orders (June) Monday 10:00 AM
A strong month of defense orders should provide the foundation for a solid factory orders report for June. The combined impact of external demand and government spending are the primary factors behind our expectation that factory orders should advance 0.6 for the second consecutive month.
ISM Non-Manufacturing Tuesday 10:00 AM
Service sector activity looks to have moderated in June and our forecast backs up that conjecture. We expect the headline in the ISM estimate of non-manufacturing activity to have eased to 48.0 vs. the 48.2 posted previously and modestly below the six-month average of 49.2. The combined impact of rising prices and sagging new orders should be the primary catalysts for another weak report.
FOMC Monetary Statement Tuesday 02:15 PM
The recent testimony by Fed Chair Ben Bernanke signaled that the Fed is still primarily concerned with the fragility of the banking system. Thus, it is quite clear that the Fed not going to be rising rates anytime soon. Mr. Bernanke carefully begin to shape this and future statements by using language that will soften the blow of changing inflation expectations and the not so subtle move back towards concerns over growth. Gone are statements making claims of expectations remaining "firmly anchored" with the Fed chair moving to the phrase "reasonably well anchored" We expect the statement to reflect the already telegraphed change in the bias in the statement back towards a balance of risks between growth and inflation. The committee will be sure to note the mid year increase in consumer spending and the recent correction in the cost of imported oil.
Initial Jobless Claims (Week ending Aug 2) Thursday 09:45 AM
The claims data through most of July was influenced by seasonal anomalies not fully captured by the seasonal adjustment to account for temporary plant closures in the manufacturing sector. Thus, the reading over the past two weeks has trended towards the upper end of its recent range and we expect that data to arrive at 400K. The recent upward trend in the data does not augur well for the August non-farm payroll report.
Pending Home Sales (June) Thursday 10:00 AM
The sharp decline in the housing sector has modestly eased and purchasing activity during the month did appear to have firmed somewhat. In some areas of the country such as the West, where prices have fallen -17.0% year over year, some buyers have taken this as a cure to wade back into the housing market. However, tight lending standards and climbing interest rates make any rebound in the sector difficult at best. Thus, we expect that pending sales will decline -1.3%.
Non-Farm Productivity/Unit Labor Costs (Q2'08) Friday 08:30 AM
The one real positive factor in the overall economy over what has been a very difficult year for the US economy has been the relatively solid pace of productivity. The trend in productivity has permitted profits at non-financial corporations to see modest gains, held down wages and in all probability limited the pass through of advancing energy and commodity costs to consumers. What may be of more interest to the market will be the estimate of unit labor costs. The recent beige book provided the first tangible sign of workers requesting wage increases due to advancing inflation. While, we do not expect to see that in the Q3 data, going forward that will be something to observe should inflation not fall back in 2009 per the Fed forecast. We expect to see non-farm productivity to increase 2.6% and unit labor costs to increase 2.0% for the second quarter of the year.