The Greek's Week Ahead - Autos Crashing the Party
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
Although I'm wary of garnering the tag of permabear, I have some more bad news for you this week. But hey, don't shoot the messenger! Last weekend, we told you the Dow Express would face a real challenge in the Advance GDP report, and well, the Dow stormed through it like a trooper. You know, I favor large cap multinationals for the equity portion of your capital allocation, but I must warn that I would reduce equity exposure overall now.
The Advance GDP report came in expectedly (at Greek HQ anyway) short of consensus expectations, and at 1.3%, it even worried me. We have to put durable goods orders and labor strength into perspective. A lot of those orders are feeding the global market. Also, the labor strength we have experienced to date may also be benefiting from corporations' success overseas, and don't get me wrong, that's a good thing. We would be in full blown recession by now otherwise.
Here's why I'm worried despite all that. In recent weeks, General Motors (GM) executives have been sounding the alarm that April auto sales were looking weak across the industry. I think many observers read into it like we did, that things were bad for the embarrassed GM, which was bleeding share to the Japanese, and it was sadly seeking to shift focus to the entire industry. But then on Friday a key Ford sales exec came out and called April industry sales well below forecasts. Ford just reported a better than expected quarter, but please recall that the quarter ended in March. What was also concerning was the mutually determined cause of the problem, an increasingly cash strained consumer. There's probably a little more to it than that, but rising gasoline prices and prices of basically everything else are certainly a factor here.
Still, there really is probably more to it than inflation unfortunately. Remember months ago when Wall Street Greek warned that General Motors' sale of a large portion of GMAC, its finance unit, was foreboding. We recognized that lending standards would harden and credit would tighten across the asset spectrum, after housing came under scrutiny. The overly levered consumer was going to find capital for automobile and other purchases harder to come by, we said. While lenders are doing everything they can to keep people from falling into foreclosure, they're also not letting similarly classified new borrowers into the game anymore. With regulators coming down harshly on subprime sharks, lenders are wisely taking a closer look at borrowers across the capital needs universe these days.
Now, while we clearly would short the recently hot Ford Motors (F) and General Motors (GM), in the very near term, since GM's earnings report on Thursday could move its shares upward or downward, the core of our concern is this. If the consumer can't get his hands on credit anymore, she is not likely to spend as much as she use to either. She may have a job, but her mortgage payment is adjusting higher, while her weekly gas and food expenditures are increasing. That's a lot to bear all at once.
The consumer has been the pillar of strength for the American economy, holding it up during tough times. So, what we are trying to say is, Atlas is getting tired now. Wall Street Greek sees recession on the horizon, and that's a ballsy call when Ben Bernanke is predicting recovery this year. Ben will have a microphone on Monday, so let's see how he feels after Friday's GDP stumble.
The week ahead...
We'll jump right back into economic data early Monday morning, with the 8:30 a.m. EDT report of March personal income and consumption. Bloomberg's consensus sees income increasing 0.6%, the same as February. Spending was generally viewed strong in March, so the consensus view for a 0.54% increase may be accurate. February spending increased by 0.6%. The drop-off should arrive with April's data, as cold weather combined with tightening lending standards and rising costs begin to starve the consumer, we believe.
At 9:45, the April Chicago PMI is due, and the consensus sees a measure of 54.0, versus 61.7 in March. Also, the Dallas Fed will provide its regional manufacturing production index data. Construction spending for March is expected to have risen 0.2%, when reported at 10:00. Spending increased 0.3% the month prior. This data is probably not important, however, since new and existing home sales have already provided a clear picture of the ailing state of housing.
As alluded to earlier, Fed Chief Ben Bernanke is penciled in to provide the keynote address to the Montana Economic Development Summit at the University of Montana. Big sky country could bring a big dive for equities if Bernanke expresses new concerns about the economy.
Earnings season is still running full steam ahead, and Monday's reports include Alberto-Culver (ACV), American Home Mortgage Investment (AHM), Anadarko Petroleum (ADO), Centex (CTX), BE Aerospace (BEAV), Covance (CVD), FEI Company (FEIC), Florida Rock (FRK), Kellogg (K), Loews Corp. (LTR), Nam Tai Electronics (NTE), Tyson Foods (TSN), Verizon (VZ) and others. It will be interesting to see how well Kellogg and Tyson Foods have pushed through rising costs of grains and feeds, respectively. It was not so long ago that Tyson warned that it would do so to relieve a trend of rising feed costs that is pressuring its margins across proteins. We wouldn't expect a good report from AHM or Centex, considering the problems within their respective industries.
Tuesday is "D" day, meaning Detroit, as automakers report April sales. Given the recent warnings from GM and Ford, we are expecting ugly news. We expect poor data would build upon Friday's GDP first see and begin to weigh on equities. Wall Street Greek views this news the most important catalyst of the week. At 10:00 a.m., the Institute for Supply Management will issue its report for U.S. manufacturing activity in the month of April. Bloomberg's consensus view sees April ISM at 51, versus 50.9 in March. I continue to view manufacturing data less significant than that of the larger service sector. Also on Tuesday, the National Association of Realtors will present its index for pending sales of existing homes in March, less significant as last week's data.
Tuesday's earnings slate includes Amkor Technology (AMKR), Archer Daniels Midland (ADM), Buffalo Wild Wings (BWLD), Cephalon (CEPH), Hanover Compressor (HC), Headwaters (HW), Imperial Sugar (IPSU), Marathon Oil (MRO), Masco (MAS), MetLife (MET), Pilgrim's Pride (PPC), Plantronics (PLT), Sirius Satellite Radio (SIRI), SOHU.com (SOHU), Steve Madden (SHOO), Techne (TECH), Under Armour (UA), Yum! Brands (YUM) and others.
March factory orders are scheduled to be announced at 10:00 a.m. on Wednesday, and the consensus expectation is for a rise of 2.0%, compared to an increase of 1.0% in February. The Mortgage Bankers Association reports weekly mortgage activity on Wednesday. Weekly data largely reflects changes in interest rates, while the four week moving average allows for a better view of trend, in our view. Also, the weekly petroleum status report has attracted close attention recently as gasoline prices rise on steep draws of inventory and concern over supply stocks heading into the summer driving season. We anticipate oil prices will begin to ease some, as economic doldrums portend to reduce domestic demand despite ongoing refinery needs and the stocking of the strategic oil reserve.
Wednesday's earnings reports include AGCO (AG), Aqua America (WTR), Applebee's International (APPB), Barrick Gold (ABX), Biogen Idec (BIIB), Blockbuster (BBI), Cal Dive (DVR), CIGNA (CI), Clorox (CLX), Credit Suisse (CS), Devon Energy (DVN), Haemonetics (HAE), MasTec (MTZ), Sprint Nextel (S), Tetra Tech (TTEK), Teva Pharmaceuticals (TEVA), Transocean (RIG), ValueClick (VCLK) and more.
At 8:30 Thursday morning, first quarter productivity will be reported, with Bloomberg's consensus view expecting an increase of 0.8%, versus 1.6% in Q4. Also on Thursday, the very important ISM non-manufacturing report is due, with the consensus view for a reading of 53.5, compared to last month's 52.4. Last month's measure was expected to measure higher. Weekly initial jobless claims are expected to reach 320,000, a healthy level in our view. The head of the European Union's Economic and Monetary Affairs Commission is scheduled to speak in Belgium on the introduction of the euro into Central Europe.
Thursday's earnings reports include Celgene (CELG), Chesapeake Energy (CHK), Corrections Corp. of America (CXW), Dean Foods (DF), Gartner (IT), General Motors (GM), Green Mountain Coffee (GMCR), Hain Celestial Group (HAIN), Jones Soda (JSDA.OB), Koppers Holding (KOP), Nabors Industries (NBR), Noble Energy (NBL), Starbucks (SBX), Steinway Musical Instruments (LVB), U.S. Physical Therapy (USPH), United Rentals (URI), World Wrestling Entertainment (WWE) and more.
At 8:30 Friday morning, the Labor Department releases its employement situation report for April. You should recall March's report, which showed growth in nonfarm payrolls of 180,000 and shocked the market. This time around the consensus is looking for much less growth of 100,000 jobs. Unemployement is seen edging up from March's 4.4%, to 4.5%. Average hourly earnings are seen rising 0.3% month to month. Wall Street Greek agrees that unemployment should edge higher this month, as we expect further losses within construction, mortgage lending and other industries to sway the measure. New York Fed President Timothy Geithner will reflect on "Reflections on the Changing Global Economy," and perhaps comment on the employment figures, so stay tuned.
Friday's earnings reports include news from Apartment Investent & Management (AIV), Eastman Kodak (EK), PSEG (PEG), Weyerhaeuser (WY) and others. We hope you found this week's independent research value-added, and look forward to keeping you informed in the week ahead.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)
Although I'm wary of garnering the tag of permabear, I have some more bad news for you this week. But hey, don't shoot the messenger! Last weekend, we told you the Dow Express would face a real challenge in the Advance GDP report, and well, the Dow stormed through it like a trooper. You know, I favor large cap multinationals for the equity portion of your capital allocation, but I must warn that I would reduce equity exposure overall now.
The Advance GDP report came in expectedly (at Greek HQ anyway) short of consensus expectations, and at 1.3%, it even worried me. We have to put durable goods orders and labor strength into perspective. A lot of those orders are feeding the global market. Also, the labor strength we have experienced to date may also be benefiting from corporations' success overseas, and don't get me wrong, that's a good thing. We would be in full blown recession by now otherwise.
Here's why I'm worried despite all that. In recent weeks, General Motors (GM) executives have been sounding the alarm that April auto sales were looking weak across the industry. I think many observers read into it like we did, that things were bad for the embarrassed GM, which was bleeding share to the Japanese, and it was sadly seeking to shift focus to the entire industry. But then on Friday a key Ford sales exec came out and called April industry sales well below forecasts. Ford just reported a better than expected quarter, but please recall that the quarter ended in March. What was also concerning was the mutually determined cause of the problem, an increasingly cash strained consumer. There's probably a little more to it than that, but rising gasoline prices and prices of basically everything else are certainly a factor here.
Still, there really is probably more to it than inflation unfortunately. Remember months ago when Wall Street Greek warned that General Motors' sale of a large portion of GMAC, its finance unit, was foreboding. We recognized that lending standards would harden and credit would tighten across the asset spectrum, after housing came under scrutiny. The overly levered consumer was going to find capital for automobile and other purchases harder to come by, we said. While lenders are doing everything they can to keep people from falling into foreclosure, they're also not letting similarly classified new borrowers into the game anymore. With regulators coming down harshly on subprime sharks, lenders are wisely taking a closer look at borrowers across the capital needs universe these days.
Now, while we clearly would short the recently hot Ford Motors (F) and General Motors (GM), in the very near term, since GM's earnings report on Thursday could move its shares upward or downward, the core of our concern is this. If the consumer can't get his hands on credit anymore, she is not likely to spend as much as she use to either. She may have a job, but her mortgage payment is adjusting higher, while her weekly gas and food expenditures are increasing. That's a lot to bear all at once.
The consumer has been the pillar of strength for the American economy, holding it up during tough times. So, what we are trying to say is, Atlas is getting tired now. Wall Street Greek sees recession on the horizon, and that's a ballsy call when Ben Bernanke is predicting recovery this year. Ben will have a microphone on Monday, so let's see how he feels after Friday's GDP stumble.
The week ahead...
We'll jump right back into economic data early Monday morning, with the 8:30 a.m. EDT report of March personal income and consumption. Bloomberg's consensus sees income increasing 0.6%, the same as February. Spending was generally viewed strong in March, so the consensus view for a 0.54% increase may be accurate. February spending increased by 0.6%. The drop-off should arrive with April's data, as cold weather combined with tightening lending standards and rising costs begin to starve the consumer, we believe.
At 9:45, the April Chicago PMI is due, and the consensus sees a measure of 54.0, versus 61.7 in March. Also, the Dallas Fed will provide its regional manufacturing production index data. Construction spending for March is expected to have risen 0.2%, when reported at 10:00. Spending increased 0.3% the month prior. This data is probably not important, however, since new and existing home sales have already provided a clear picture of the ailing state of housing.
As alluded to earlier, Fed Chief Ben Bernanke is penciled in to provide the keynote address to the Montana Economic Development Summit at the University of Montana. Big sky country could bring a big dive for equities if Bernanke expresses new concerns about the economy.
Earnings season is still running full steam ahead, and Monday's reports include Alberto-Culver (ACV), American Home Mortgage Investment (AHM), Anadarko Petroleum (ADO), Centex (CTX), BE Aerospace (BEAV), Covance (CVD), FEI Company (FEIC), Florida Rock (FRK), Kellogg (K), Loews Corp. (LTR), Nam Tai Electronics (NTE), Tyson Foods (TSN), Verizon (VZ) and others. It will be interesting to see how well Kellogg and Tyson Foods have pushed through rising costs of grains and feeds, respectively. It was not so long ago that Tyson warned that it would do so to relieve a trend of rising feed costs that is pressuring its margins across proteins. We wouldn't expect a good report from AHM or Centex, considering the problems within their respective industries.
Tuesday is "D" day, meaning Detroit, as automakers report April sales. Given the recent warnings from GM and Ford, we are expecting ugly news. We expect poor data would build upon Friday's GDP first see and begin to weigh on equities. Wall Street Greek views this news the most important catalyst of the week. At 10:00 a.m., the Institute for Supply Management will issue its report for U.S. manufacturing activity in the month of April. Bloomberg's consensus view sees April ISM at 51, versus 50.9 in March. I continue to view manufacturing data less significant than that of the larger service sector. Also on Tuesday, the National Association of Realtors will present its index for pending sales of existing homes in March, less significant as last week's data.
Tuesday's earnings slate includes Amkor Technology (AMKR), Archer Daniels Midland (ADM), Buffalo Wild Wings (BWLD), Cephalon (CEPH), Hanover Compressor (HC), Headwaters (HW), Imperial Sugar (IPSU), Marathon Oil (MRO), Masco (MAS), MetLife (MET), Pilgrim's Pride (PPC), Plantronics (PLT), Sirius Satellite Radio (SIRI), SOHU.com (SOHU), Steve Madden (SHOO), Techne (TECH), Under Armour (UA), Yum! Brands (YUM) and others.
March factory orders are scheduled to be announced at 10:00 a.m. on Wednesday, and the consensus expectation is for a rise of 2.0%, compared to an increase of 1.0% in February. The Mortgage Bankers Association reports weekly mortgage activity on Wednesday. Weekly data largely reflects changes in interest rates, while the four week moving average allows for a better view of trend, in our view. Also, the weekly petroleum status report has attracted close attention recently as gasoline prices rise on steep draws of inventory and concern over supply stocks heading into the summer driving season. We anticipate oil prices will begin to ease some, as economic doldrums portend to reduce domestic demand despite ongoing refinery needs and the stocking of the strategic oil reserve.
Wednesday's earnings reports include AGCO (AG), Aqua America (WTR), Applebee's International (APPB), Barrick Gold (ABX), Biogen Idec (BIIB), Blockbuster (BBI), Cal Dive (DVR), CIGNA (CI), Clorox (CLX), Credit Suisse (CS), Devon Energy (DVN), Haemonetics (HAE), MasTec (MTZ), Sprint Nextel (S), Tetra Tech (TTEK), Teva Pharmaceuticals (TEVA), Transocean (RIG), ValueClick (VCLK) and more.
At 8:30 Thursday morning, first quarter productivity will be reported, with Bloomberg's consensus view expecting an increase of 0.8%, versus 1.6% in Q4. Also on Thursday, the very important ISM non-manufacturing report is due, with the consensus view for a reading of 53.5, compared to last month's 52.4. Last month's measure was expected to measure higher. Weekly initial jobless claims are expected to reach 320,000, a healthy level in our view. The head of the European Union's Economic and Monetary Affairs Commission is scheduled to speak in Belgium on the introduction of the euro into Central Europe.
Thursday's earnings reports include Celgene (CELG), Chesapeake Energy (CHK), Corrections Corp. of America (CXW), Dean Foods (DF), Gartner (IT), General Motors (GM), Green Mountain Coffee (GMCR), Hain Celestial Group (HAIN), Jones Soda (JSDA.OB), Koppers Holding (KOP), Nabors Industries (NBR), Noble Energy (NBL), Starbucks (SBX), Steinway Musical Instruments (LVB), U.S. Physical Therapy (USPH), United Rentals (URI), World Wrestling Entertainment (WWE) and more.
At 8:30 Friday morning, the Labor Department releases its employement situation report for April. You should recall March's report, which showed growth in nonfarm payrolls of 180,000 and shocked the market. This time around the consensus is looking for much less growth of 100,000 jobs. Unemployement is seen edging up from March's 4.4%, to 4.5%. Average hourly earnings are seen rising 0.3% month to month. Wall Street Greek agrees that unemployment should edge higher this month, as we expect further losses within construction, mortgage lending and other industries to sway the measure. New York Fed President Timothy Geithner will reflect on "Reflections on the Changing Global Economy," and perhaps comment on the employment figures, so stay tuned.
Friday's earnings reports include news from Apartment Investent & Management (AIV), Eastman Kodak (EK), PSEG (PEG), Weyerhaeuser (WY) and others. We hope you found this week's independent research value-added, and look forward to keeping you informed in the week ahead.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)
Labels: Week Ahead
posted by The Greek | 12:53 AM
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