The Greek's The Week Ahead - Putting Together the Economic Puzzle
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
This piece of sky goes here and this jagged piece of ocean goes here... Putting together the puzzle that is our economic future is complicated these days by dynamic and unique changes to the global environment we are operating within. When the economy should be slowing, it shows signs of life. While unemployment should be rising, it holds up enough to inspire debate as to the accuracy of data. When inflation is suppose to be giving way, its stubborn persistence draws a line between economists debating its future trend.
What the heck is going on here! Why are so many experts seemingly confused, taking positions at odds with one another and pointing to various factors as the key to their views.? How can so many equity analysts miscalculate first quarter results by so much?. What is behind the mania driving emerging markets? These are questions with many answers, but one thing holds true within the fabric of each. The global environment is dynamic, and historical norms cannot be relied upon to hold true in the future to the same degree as they have in the past.
This week, many new puzzle pieces will become available, and could make sense of the jumbled mess before us. Wall Street Greek expects that as we work toward the first quarter GDP revision, which is widely anticipated to be revised lower, the high flying Dow and S&P 500 indices, which now lack the support of earnings season, should give back some profits. Even if GDP does not shake things up, the Labor Department's reporting of nonfarm payrolls and the PCE inflation indicator portend to.
Following the Memorial Day holiday, Tuesday kicked off the work week with the Conference Board's Consumer Confidence Report. The report showed an increase in confidence in May to 108, from 106.3 in April (revised higher). The measure also exceeded economists forecasts for a reading of 105 this month, as compiled by Bloomberg. Does this mean the consumer is okay? Sure, but it does not mean she will stay that way. May's confidence was probably born from the stock market's strength this month, adding to the wealth of many Americans. So, despite higher gasoline prices and other expenditures, consumers have a brighter view of the future.
A factor that can change that is the continuing of creeping prices and persistent inflation in food, energy and other costs of living. A change in the employment picture would also pressure the consumer's outlook and spending habits. Tighter lending standards are sure to play a role as well. I think the impact of the latter will be analogous to the impact that taking candy from a baby has on the child. Losing your home or automobile can be rather disheartening, and losing the ability to borrow is bound to have impact as well. The aggregate impact of higher costs of living should lead to a decrease in restaurant outings and shopping binges. The result of this should be tightening margins of consumer discretionary businesses, which in turn should drive reduction of workforce. And there you have the downward spiral of consumer spending.
On Tuesday, S&P Case-Shiller released their combined work on the depressed state of housing. The first quarter of 2007 represented the first quarter of home price decrease since it last happened in 1991. Nationwide home values fell 1.4%. I'm sure none of us were surprised, after all, we just discovered that new home prices fell 11% in April. Another thing likely to keep people from spending as much as they use to is the loss of home equity as values continue to decline. Nothing hurts more than taking a loss, and the memory can affect our spending for quite some time to follow, in my opinion. I'm just going by my understanding of human nature here. When a guy blows ten grand in the stock market, it could send him away for years. I for one, had an early experience in the casino the day after I turned 21 that kept me from Atlantic City for more than five years. Most of us hate that losing feeling, so I don't buy the views of the experts who say that decreases in home values do not affect consumer confidence readings as much as other issues. Ten grand is ten grand, and 11% is not a pittance.
Just as Peter Lynch took from personal experience to select some of the greatest stocks of his time, I look into my everyday life for signs of economic change, and stock picks as well. This holiday weekend, as this autoless New Yorker (a phenomenon not atypical for the city) visited family, I had to borrow a car to get around. It seems the rest of you still do not enjoy the effective transit system we rely on here in New York, though it be stinky. Anyway, I noticed that after I reminiscently borrowed my father's car to visit a friend and play tennis over the weekend, his response upon my return was, "you used all my gas." This was a strange comment from my father, one I had never heard before, not even in my teens. I view this as supporting evidence that, yes, gas prices really do matter to regular folk.
It seems Chinese regulators have taken Wall Street Greek's advice and have acted in a more direct manner to stem equity investment. Recall our article last week, when we suggested Chinese regulators consider limiting equity investment to a specific level of liquid wealth. Last night, after the market close, China announced an increase in its cut of trade commissions. The government raised the stamp duty on shares to 0.3%, from 0.1% previously. This move could impact trade, but is not likely to slow the inflow of domestic capital investment into Chinese equity markets. Also, I still have not received my consulting fee from the People's Republic. In other international news, the Bank of Canada decided to keep rates steady at 4.25%.
On Wednesday, the latest Federal Open Market Committee meeting minutes will be released and threaten to contain hawkish language or express concern about the housing market. The weekly purchase index will be provided by the Mortgage Banker's Association, but we continue to advise that weekly data should be impacted by rate change, while the general trend should continue weak.
Weekly retail data will again avail itself with the releases of the ICSC-UBS Store Sales report and the Redbook report. We continue to closely monitor these trends, seeking indication of consumer softness.
In a prelude to Friday's Employment Status Report, the recently prescient ADP Employment Report is due Wednesday morning. The May 2nd report for April accurately predicted weakness in the Conference Board's report that followed. ADP measures private sector employment trends.
More employment data starts the day off on Thursday, with the Monster Employment Index release at 6:00 a.m. EDT. With a significant and increasing degree of job seeking done now through the Internet, this has become a more important report than the Help-Wanted Index provided by the Conference Board. April's reading measured 186. The weekly reading of Initial Jobless Claims is also due Thursday, and expectations stand for a level of 310,000. Something higher would raise eyebrows and concern for Friday's Labor Department report.
The corporate profits component of GDP will be reported for the first quarter. However, the big data bit that should significantly impact equities and sentiment on Thursday is the revision of first quarter GDP. The initial reading showed GDP growth had slowed to just 1.3%, but expectations have worsened for the revision. The consensus of economists surveyed by Bloomberg sees Q1 growth at just 0.8%. Thus, a reading in line is concerning to equities this week, and the reason why Wall Street Greek expects equity action to the downside leading into the report. Obviously, a moderate upside surprise should be met with welcome. A reading sharply above expectations could ironically raise concern about a future Fed rate hike, while a surprise to the downside would likely concern the market about pending recession. The value added service we provide is sure of one thing, the global economy and equity markets are likely due for a shock if conflict is initiated with Iran. We have outlined our view on this several times before and recommend survey of our various articles on the topic. Our time horizon is within a year and our view of the probability of its occurrence is "highly likely".
The National Association for Purchasing Managers will report on Chicagoland conditions in manufacturing, but we continue to view manufacturing as a laggard to economic slowing this time around. We believe it will follow other events, including lighter domestic demand trickled up from a tighter consumer budget and also on global adjustment post conflict. This is a view few are bold enough to make, so I ask you remember it please.
The month to month change in construction spending is set for 10:00 a.m. release Thursday, and expectations are for no change. Commercial construction has helped to protect the overall construction industry from housing troubles, but we anticipate a saturated retail environment will be exposed with time and commercial construction will be severely impacted as a result. While we are on the topic of housing, Fitch Ratings kicks off its housing conference, while Hovnanian Enterprises (HOV) reports the results of its fiscal second quarter.
Friday holds one of the busiest economic data slates imaginable. The very important Employment Situation Report leads all with its release at 8:30 a.m. EDT. Nonfarm payrolls are expected to increase by 135,000, a decent increase considering April's rise of just 88,000. Unemployment is generally seen holding at 4.5%, and we agree. Average hourly earnings are seen rising 0.3%, month to month, not a slow pace. The market would be surprised to get another reading below 100,000 in May, but Wall Street Greek expects this indicator to be the one that should eventually take the lead (lower) from weaker retail spending. We may still be early this month, as retail has not softened significantly as yet. However, this and the consumer softening issue are key factors that we expect to eventually be proven correct on.
This piece of sky goes here and this jagged piece of ocean goes here... Putting together the puzzle that is our economic future is complicated these days by dynamic and unique changes to the global environment we are operating within. When the economy should be slowing, it shows signs of life. While unemployment should be rising, it holds up enough to inspire debate as to the accuracy of data. When inflation is suppose to be giving way, its stubborn persistence draws a line between economists debating its future trend.
What the heck is going on here! Why are so many experts seemingly confused, taking positions at odds with one another and pointing to various factors as the key to their views.? How can so many equity analysts miscalculate first quarter results by so much?. What is behind the mania driving emerging markets? These are questions with many answers, but one thing holds true within the fabric of each. The global environment is dynamic, and historical norms cannot be relied upon to hold true in the future to the same degree as they have in the past.
This week, many new puzzle pieces will become available, and could make sense of the jumbled mess before us. Wall Street Greek expects that as we work toward the first quarter GDP revision, which is widely anticipated to be revised lower, the high flying Dow and S&P 500 indices, which now lack the support of earnings season, should give back some profits. Even if GDP does not shake things up, the Labor Department's reporting of nonfarm payrolls and the PCE inflation indicator portend to.
Following the Memorial Day holiday, Tuesday kicked off the work week with the Conference Board's Consumer Confidence Report. The report showed an increase in confidence in May to 108, from 106.3 in April (revised higher). The measure also exceeded economists forecasts for a reading of 105 this month, as compiled by Bloomberg. Does this mean the consumer is okay? Sure, but it does not mean she will stay that way. May's confidence was probably born from the stock market's strength this month, adding to the wealth of many Americans. So, despite higher gasoline prices and other expenditures, consumers have a brighter view of the future.
A factor that can change that is the continuing of creeping prices and persistent inflation in food, energy and other costs of living. A change in the employment picture would also pressure the consumer's outlook and spending habits. Tighter lending standards are sure to play a role as well. I think the impact of the latter will be analogous to the impact that taking candy from a baby has on the child. Losing your home or automobile can be rather disheartening, and losing the ability to borrow is bound to have impact as well. The aggregate impact of higher costs of living should lead to a decrease in restaurant outings and shopping binges. The result of this should be tightening margins of consumer discretionary businesses, which in turn should drive reduction of workforce. And there you have the downward spiral of consumer spending.
On Tuesday, S&P Case-Shiller released their combined work on the depressed state of housing. The first quarter of 2007 represented the first quarter of home price decrease since it last happened in 1991. Nationwide home values fell 1.4%. I'm sure none of us were surprised, after all, we just discovered that new home prices fell 11% in April. Another thing likely to keep people from spending as much as they use to is the loss of home equity as values continue to decline. Nothing hurts more than taking a loss, and the memory can affect our spending for quite some time to follow, in my opinion. I'm just going by my understanding of human nature here. When a guy blows ten grand in the stock market, it could send him away for years. I for one, had an early experience in the casino the day after I turned 21 that kept me from Atlantic City for more than five years. Most of us hate that losing feeling, so I don't buy the views of the experts who say that decreases in home values do not affect consumer confidence readings as much as other issues. Ten grand is ten grand, and 11% is not a pittance.
Just as Peter Lynch took from personal experience to select some of the greatest stocks of his time, I look into my everyday life for signs of economic change, and stock picks as well. This holiday weekend, as this autoless New Yorker (a phenomenon not atypical for the city) visited family, I had to borrow a car to get around. It seems the rest of you still do not enjoy the effective transit system we rely on here in New York, though it be stinky. Anyway, I noticed that after I reminiscently borrowed my father's car to visit a friend and play tennis over the weekend, his response upon my return was, "you used all my gas." This was a strange comment from my father, one I had never heard before, not even in my teens. I view this as supporting evidence that, yes, gas prices really do matter to regular folk.
It seems Chinese regulators have taken Wall Street Greek's advice and have acted in a more direct manner to stem equity investment. Recall our article last week, when we suggested Chinese regulators consider limiting equity investment to a specific level of liquid wealth. Last night, after the market close, China announced an increase in its cut of trade commissions. The government raised the stamp duty on shares to 0.3%, from 0.1% previously. This move could impact trade, but is not likely to slow the inflow of domestic capital investment into Chinese equity markets. Also, I still have not received my consulting fee from the People's Republic. In other international news, the Bank of Canada decided to keep rates steady at 4.25%.
On Wednesday, the latest Federal Open Market Committee meeting minutes will be released and threaten to contain hawkish language or express concern about the housing market. The weekly purchase index will be provided by the Mortgage Banker's Association, but we continue to advise that weekly data should be impacted by rate change, while the general trend should continue weak.
Weekly retail data will again avail itself with the releases of the ICSC-UBS Store Sales report and the Redbook report. We continue to closely monitor these trends, seeking indication of consumer softness.
In a prelude to Friday's Employment Status Report, the recently prescient ADP Employment Report is due Wednesday morning. The May 2nd report for April accurately predicted weakness in the Conference Board's report that followed. ADP measures private sector employment trends.
More employment data starts the day off on Thursday, with the Monster Employment Index release at 6:00 a.m. EDT. With a significant and increasing degree of job seeking done now through the Internet, this has become a more important report than the Help-Wanted Index provided by the Conference Board. April's reading measured 186. The weekly reading of Initial Jobless Claims is also due Thursday, and expectations stand for a level of 310,000. Something higher would raise eyebrows and concern for Friday's Labor Department report.
The corporate profits component of GDP will be reported for the first quarter. However, the big data bit that should significantly impact equities and sentiment on Thursday is the revision of first quarter GDP. The initial reading showed GDP growth had slowed to just 1.3%, but expectations have worsened for the revision. The consensus of economists surveyed by Bloomberg sees Q1 growth at just 0.8%. Thus, a reading in line is concerning to equities this week, and the reason why Wall Street Greek expects equity action to the downside leading into the report. Obviously, a moderate upside surprise should be met with welcome. A reading sharply above expectations could ironically raise concern about a future Fed rate hike, while a surprise to the downside would likely concern the market about pending recession. The value added service we provide is sure of one thing, the global economy and equity markets are likely due for a shock if conflict is initiated with Iran. We have outlined our view on this several times before and recommend survey of our various articles on the topic. Our time horizon is within a year and our view of the probability of its occurrence is "highly likely".
The National Association for Purchasing Managers will report on Chicagoland conditions in manufacturing, but we continue to view manufacturing as a laggard to economic slowing this time around. We believe it will follow other events, including lighter domestic demand trickled up from a tighter consumer budget and also on global adjustment post conflict. This is a view few are bold enough to make, so I ask you remember it please.
The month to month change in construction spending is set for 10:00 a.m. release Thursday, and expectations are for no change. Commercial construction has helped to protect the overall construction industry from housing troubles, but we anticipate a saturated retail environment will be exposed with time and commercial construction will be severely impacted as a result. While we are on the topic of housing, Fitch Ratings kicks off its housing conference, while Hovnanian Enterprises (HOV) reports the results of its fiscal second quarter.
Friday holds one of the busiest economic data slates imaginable. The very important Employment Situation Report leads all with its release at 8:30 a.m. EDT. Nonfarm payrolls are expected to increase by 135,000, a decent increase considering April's rise of just 88,000. Unemployment is generally seen holding at 4.5%, and we agree. Average hourly earnings are seen rising 0.3%, month to month, not a slow pace. The market would be surprised to get another reading below 100,000 in May, but Wall Street Greek expects this indicator to be the one that should eventually take the lead (lower) from weaker retail spending. We may still be early this month, as retail has not softened significantly as yet. However, this and the consumer softening issue are key factors that we expect to eventually be proven correct on.
Personal income and consumption will also be reported on Friday's big league data slate. Income is seen rising 0.3% month the month, while consumption is expected to rise 0.4% in April. Eventually, I expect these figures to tail off, but I'm not sure if April will be the inflection point. It's more likely to happen in forward months, in my view. The University of Michigan will publish its consumer survey on Friday, and expectations are for a reading of 88. The survey recently showed a blip of short-term rise in a trend of decline. We anticipate the downtrend will continue this year, but likely come to prominence next month. This month could hold steady, considering short-term issues providing confidence now.
The ISM Manufacturing index is seen measuring 54.0, versus 54.7 a month prior. We reiterate that we anticipate manufacturing weakness will lag other drivers in this economic cycle. This is due to the support of international demand, exacerbated by a weakening dollar and developing world. The National Association of Realtors will report April's Pending Home Sales on Friday. March showed a 4.7% decrease, and we do not anticipate strength for April's data either. Finally, May motor vehicle sales are expected to measure 12.5 million, versus 12.4 million in April.
We hope you found value in this week's report and we apologize for the delay in its publishing. Development efforts and holiday travel impacted us this week. We expect to get back on track soon.
If you would like to advertise at the end of one of our articles, contact us at wallstreetgreek@gmail.com. (disclosure)
Labels: Week Ahead
posted by The Greek | 11:56 AM
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