The week begins on a light note with no major data scheduled for release. However, one week ahead of the Federal Reserve’s Open Market Committee meeting, markets will hear three central bank officials voice their opinions on policy, regulation, and the economic outlook.

Equity futures are looking to extend Friday’s losses, which put an end to five straight daily advances. Despite the slide on Friday, the benchmark S&P 500 gained 2.6% on the week as a series of fresh data points helped investors overcome the sentiment that equities were overheated. Since hitting a 12-year low in early March, the S&P 500 has advanced by 52.6%, marking the fastest spurt since the 1930s and putting the index at its highest level in 11 months.

Looking ahead to this week’s data, it would appear there’s a good chance for equities to build on those gains. The week’s biggest release, retail sales, is set to have “a blockbuster performance” in August owing to the cash-for-clunkers program, according to analysts at TD. The government’s incentive program should also boost the industrial production numbers for July, and housing starts are expected to see their fifth monthly gain while the housing market slowly stabilizes.

But that’s all later in the week; with no data on the docket for today, the market’s direction will be less clear. Looking to global markets for a sense of investor sentiment provides no optimism. Aside from the 1.24% gain in China’s Shanghai Index, stocks are performing poorly to begin the week. Japan’s Nikkei fell 2.32% and Hong Kong’s Hang Seng shed 1.08%, while in Europe, London’s FTSE 100 is currently down 0.74% and France’s CAC 40 is down nearly 1%.

Meanwhile, reversing trends from last week: the US dollar has rebounded from annual lows seen, WTI Crude is down 79 cents to $68.50 per barrel, and Gold is back under the $1,000 per ounce mark at $998.80.

Key Releases This Week:

Monday:

8:35 ― Elizabeth Duke, a governor of the Federal Reserve, speaks on regulatory reform at the AICPA national banking conference in Washington, DC.

12:30 ― Jeffrey Lacker, President of the Richmond Fed, addresses the Risk Management Association on financial regulation, in Charlotte, NC.

3:50 ― Janet Yellen, President of the San Francisco Fed, speaks on the economic outlook and monetary policy to Certified Financial Analysts of San Francisco.

Treasury Auctions:

1:00 ― 3-Month Bills

1:00 ― 6-Month Bills

Tuesday:

8:30 ― Retail Sales are expected to see a 2% boost in August, mostly owing to car sales during the cash-for-clunkers program. August was the third straight monthly gain for light vehicles sales, which grew from an annual rate of 9.7 million units in June to 11.2 million in July, and then to 14.1 million in August. 

“While auto sales have experienced significant stabilization, the other components of retail sales remain extremely weak as consumers continue to spend cautiously,” said analysts at BBVA. 

With autos excluded, retailers are expected to post a more modest 0.4% gain, reflecting a slow recovery as consumers shift to savings mode after years of excess consumption. However, the modest gain compares favorably to the 0.6% cutback to sales in the prior month.

8:30 ― Soaring oil prices are expected to push the Producer Price Index up in August, in line with recent volatility. PPI shot up 1.8% in June, was dragged down 0.9% in July, and in August it should climb 0.8% as gas prices went up almost 30%.

“Food prices will probably reverse some of July's 1.5% contraction, lifting the headline index still higher,” said analysts at IHS Global Insight, whose forecast double the consensus at +1.6%.

Core prices, which exclude the volatile food and energy components, is expected to edge up 0.1% in the month.

8:30 ― As always, the month’s first look at manufacturing conditions will be the Empire State Survey, which surprised analysts last month when it soared to its highest level since the recession began in December 2007. That initiated a series of positive reports last month, culminating in a 52.9 score for the nationwide ISM report ― the highest score since June 2007. The Empire report, released by the New York Fed, posted a 12-point score in August, which is to be topped by 14-point score this month.

10:00 ― Business Inventories were probably reduced 0.9% in July after suffering a 1.1% setback in June. The more inventories are slashed, the quicker growth will be when businesses eventually begin to restock, or so the conventional wisdom believes. But for now, continued cutbacks go hand in hand with GDP declines and payroll cutbacks.

“The inventory to sales ratio is declining, which could indicate that the adjustment is nearing bottom,” said analysts at BBVA. “Although a slower rate of decline in inventories could result in a positive effect on GDP, businesses are expected to hold inventories at low levels until demand is restored.”

Treasury Auctions:

1:00 ― 4-Week Bills

Wednesday:

8:30 ― Rising energy prices should push the Consumer Price Index up 0.4% in August, though forecasts are as low as -0.1% as lower priced vehicles sold in the cash-for-clunkers program could have a pulldown effect. 

The median forecast expects the less volatile core component to post a 0.1%, suggesting that underlying prices remain sluggish, in line with wages.”

“Ongoing economic slack, which can be seen in the form of the high unemployment rate, low capacity utilization and declining wages, will continue to emit downward pressure on prices,” said the research team at BBVA. 

9:15 ― The sentiment-based ISM manufacturing survey indicated that conditions were improving in August with new orders and production each posting advanced. That should be confirmed in the Industrial Production report, which is set to jump 0.7% in the month following a 0.5% upscale in July. Two months of increases would help the third quarter see growth mode, but in the medium-term analysts remain cautious about the outlook. 

“Inventories and capital spending (capex) need to show strong growth for this nascent economic recovery to gain traction, because consumer spending is expected to lag in this cycle, owing to structural headwinds—high debt service, high debt to income and low savings,” said economists at Deutsche Bank. “In the past, recovering production and a bottoming in capacity use have always been a harbinger of a pickup in capex.” 

1:00 ― The Homebuilder Sentiment gets little market attention, but those in real estate will want to see if confidence improves for the fourth straight month in September. The index is currently at 18, the highest level since June 2008, but overall that’s still abysmal. Not until inventories are severely cut back will homebuilders have reason to be optimistic about the larger picture.

Thursday:

8:30 ― New projects to build single-family home have risen for the past five months, including gains of 5% or more in the past four months. However, multi-family units have been struggling, which brought the overall figure for Housing Starts down 1% in July. Things are looking better for August: single-family units are expected to keep increasing, while multi-family units may have bottomed out.

“Multi-family permits fell to an all time low in July (data start in 1959),” note economists at IHS Global Insight. “Mathematically, they cannot fall much further, and for August we project a small gain.”

8:30 ― New Claims for Unemployment Insurance fell 26,000 to 550k last week, the lowest level in seven weeks. Rather than triggering a new trend in the labor market, however, analysts expect initial claims to bounce right back to 575k in the week ending Sept. 12 ― the survey week for nonfarm payrolls.

10:00 ― Like its cousin index in New York, the Philadelphia Fed Survey shot into growth mode last month, and analysts look for continued improvement in September. Forecasters look for a score of 8.0. If both indexes are pointing towards continued gains, investors could get optimistic that the nationwide ISM survey will post another upside surprise when it is released in the first week of October.
 


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