The Greek's Week Ahead - Retail Recall
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
March retail sales figures were said to have benefited from relatively mild temperatures, corporate bonus season and the early April date of Easter. Wall Street Greek thinks April's data could bring a recall of investor confidence that was previously supported by continued consumer strength. Please also recall that the last meeting of the Federal Open Market Committee lit a fire under the market when perceived hawkish language was removed from the official statement. In the days that followed, Ben Bernanke was forced to speak to the issue, and his quote conflicted with the market's view, as he firmly stated that the Fed remained equally concerned about inflation. We believe this Wednesday and Friday could bring the type of data and news that conflicts with the message the market bought into about a month ago.
First of all, if March retail sales benefited from warm weather, April should have suffered from one of the coldest such periods in history. Besides weather, gasoline prices have gradually risen through the period to a current peak, thanks to tight refinery production. At the same time, other prices have continued to rise at a robust pace, including the price of the oft-excluded foods category.
Fluctuations in food prices have historical been discounted because they mostly occured due to seasonal and weather influences. However, as we've been discussing here since early this year, the current trend is different. New uses for food, specifically corn in ethanol production, have driven up the price of foods across the horizontal field and vertical chain. As more acreage is used for corn planting, less is available for wheat and soybean production, driving up the prices of surrogate grains. Increasing costs for feed raise expenditures for protein producers, and we've seen those increases of input costs mostly transferred over to the consumer through higher beef, pork and poultry prices at the market.
While these price pressures have mounted, ARMS loans across the country are triggering adjustments of monthly payment burdens higher for many Americans. Meanwhile, the turmoil within the subprime lending sector, and increasing foreclures and defaults have made a real impact on lending standards. Credit is getting harder to come by, and credit my friends drives American buying power. Evidence of this was provided just last week when General Motors blamed its poor results on its GMAC lending unit, in which it retains a 49% share.
All these factors make this week an especially telling one. Important credit, retail and Fed policy news will reach the market, and potentially awaken it to an increasingly thrifty American consumer. When the American consumer stops spending, that's when you start to see layoffs, weaker ISM results, slowing corporate earnings and recession. We have benefited for quite some time now from American ventures overseas, but American companies and the economy remain mostly driven by American expenditures. This is the basis of our thesis that the economy will weaken into recession this year.
This week...
March consumer credit is scheduled for report at 3:00 p.m. EDT Monday. The consensus of economists surveyed by Bloomberg are looking for consumer credit to expand by $4 billion, after a $3 billion increase in February. Consumer credit growth was as high as $12.4 billion in November, and besides the obvious seasonal driver, the lower level of credit growth now may also be indicative of the pull back by lenders that we outlined above. It may also reflect reduced demand in light of the strain the consumer is already under. In any event, we view a lower number as a negative now.
Overseas, Nicolas Sarkozy won over Socialist Segolene Royal in the race for the presidency of France. This is viewed as a positive for America, as the conservative Sarkozy is seen as a much better fit for business growth. Separately, the United Kingdom is observing a bank holiday Monday.
The SEC is kicking off the first of three roundtable meetings on shareholder rights and federal proxy rules. In the corporate world, Motorola is scheduled to have a well covered annual shareholders meeting, within which Carl Icahn is expected to push for one or more seats on the board. Earnings season is still in progress, and reports scheduled for Monday include A.C. Moore Arts & Crafts (ACMR), Blue Nile Inc. (NILE), Darden Restaurants (DRI), Duquesne Light Holdings (DQE), Fluor Corp. (FLR), Guitar Center (GTRC), Hansen Natural (HANS), HEELY'S INC. (HLYS), Kinross Gold (KGC), McDermott International (MDR), Sotheby's (BID), Sykes Enterprises Inc. (SYKE), TETRA Technologies (TTI), Wynn Resorts Limited (WYNN) and others.
Consumer spending accounts for more than two-thirds of the economy, and Tuesday brings the weekly comparable store sales report, which provides data on major retail chains. The data is provided by the International Council of Shopping Centers and UBS. I do not have any consensus data to offer, but I suggest keeping an eye on this weekly report for signs of a breaking consumer. Also, the Redbook survey is due out Tuesday morning.
At 10:00 a.m., March wholesale inventory is expected by the consensus to have risen 0.4%, compared to 0.5% in February. Since the data is so far lagged, we can expect it to mirror other good news from March regarding inventories.
Tuesday's earnings reporters include 1-800 Contacts (CTAC), Allied Capital (ALD), Allos Therapeutics (ALTH), American Mortgage Acceptance (AMC), Boston Beer Co. (SAM), Brightpoint Inc. (CELL), Church & Dwight (CHD), Cisco Systems (CSCO), CVS/Caremark (CVS), Deutsche Bank (DB), Duke Energy (DUK), El Paso Corp. (EP), Harrah's Entertainment (HET), Henry Schein (HSIC), Jack Henry & Associates (JKHY), Marvel Entertainment (MVL), Paxar Corp. (PXR), Playboy Enterprises (PLA), Priceline (PCLN), Tyco International (TYC), Walt Disney (DIS) and others.
Wednesday will be keyed by the Federal Open Market Committee meeting. The great majority of experts anticipate the FOMC will make no change to the benchmark rate, which stands at 5.25%, but some speculate that indications that the Fed is not considering a rate cut could spark a sell-off. We are not a part of that group, since we expect the market already is aware of the Fed's focus on inflation.
Wednesday's regular report from the Mortgage Banker's Association will likely continue to reflect general malaise within mortage originations, with refinancings driven by rate change. The regular petroleum status report from the Energy Information Administration will be closely followed by energy traders. Recent draws of gasoline have raised concerns for gas prices heading into the seasonal driving season. However, refinery capacity utilization has been on the rise, and there remains hope that stocks may build with some five weeks to go before the official start to the summer season.
Wednesday's earnings reports include Barr Pharmaceuticals (BAR), BioCryst Pharmaceuticals (BCRX), Brooks Automation (BRKS), Foster Wheeler (FWLT), Golden Star Resources (GSS), Hospira (HSP), LCA-Vision (LCA), Mine Safety Appliances (MSA), Pacific Ethanol (PEIX), Precision Castparts (PCP), Ralcorp Holdings (RAH), Service Corp. International (SCI), Stean 'n Shake (SNS), Tasty Baking Co. (TSTY), TEEKAY SHIPPING (TK), Toll Brothers (TOL), Toyota Motor (TM), Universal Compression (UCO), Whole Foods Market (WFMI) and others.
On Thursday, bright and early, we will receive important international trade data. April import prices are expected to have risen by 1.1%, after an increase of 1.7% in March. International trade for March is expected to show a deficit of $60 billion, compared to a deficit of $58.4 billion a month prior. Thursday also brings the weekly jobless claims report, with consensus expectations looking for 315,000 new filings for unemployment. I do not believe the weekly EIA Natural Gas status is what is keeping nat gas prices up these days. It makes more sense that lofty oil prices and their interrelation, and that of coal, in energy generation in the U.S., especially if foreign sources of oil become strained in the future, is what is holding up nat gas. It explains strength in uranium, coal and natural gas over recent times.
Overseas, the European Central Bank is expected by most to hold rates steady, though the press conference that follows may allow ECB President Jean-Claude Trichet an opportunity to foreshadow a future hike. On this same day, the Bank of England is expected to hike rates by a quarter-point. Recent inflation readings justify the increase, in my view and the view of many others that I have seen.
Bear Stearns is holding an interesting conference on Thursday, entitled "Home Prices and the Future of Mortgage Credit." A day after the FOMC meeting, Fed Governor Randall Krozner is scheduled to speak in Chicago, where the local Fed Chief Michael Moskow will be in attendance as well. Earnings reports readied for Thursday include those of Ameren Corp. (AEE), Autobytel.com (ABTL), Biovail (BVF), California Pizza Kitchen (CPKI), Cosi Inc. (COSI), Hillenbrand Industries (HB), Mamma.com (MAMA), Orleans Homebuilders (OHB), NVIDIA (NVDA), PETROHAWK ENERGY (HK), Sara Lee (SLE), THQ Inc. (THQI), Vonage Holdings (VG) and others.
As you may have already guessed, we view the April retail sales report, which is scheduled for 8:30 a.m. EDT Friday release, an important market driver this week. Bloomberg's consensus expects April sales to have risen 0.4%, compared with growth of 0.7% in March. Considering recent months' strength and April's poor weather, we expect a downside surprise, though the consensus clearly expects a growth slowdown already. A reading close to consensus will likely have no impact, but we advise you to pay attention to the trend this month and into the near future, as we expect consumer spending to become the most watched, and spoken of, economic factor in the months ahead.
April's Producer Price Index is also due out at 8:30, and the consensus is looking for an increase of 0.6%, versus 1.0% growth in March. We continue to advise not to throw out the headline figure, despite expert willingness to do so in focusing on the core PPI. We reiterate that secular drivers of food and energy prices make the headline figure more important than the core. In any event, this inflation figure bears watching on Friday.
March business inventories are set for release at 10:00 a.m., and the consensus sees a 0.25% rise, versus a 0.3% increase in February. With international demand strong and the consumer impact not yet driving important enough weakness in domestic demand, business inventories are likely to continue to look favorable for the economy.
Friday's earnings reporters include ALCATEL-LUCENT (ALU), Goldcorp. (GG), Movie Gallery (MOVI), Petrobras (PBR), Novavax (NVAX), Volvo AV (VOLV) and others. We hope you found value in this week's edition, and wish you a great week trading.
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)
March retail sales figures were said to have benefited from relatively mild temperatures, corporate bonus season and the early April date of Easter. Wall Street Greek thinks April's data could bring a recall of investor confidence that was previously supported by continued consumer strength. Please also recall that the last meeting of the Federal Open Market Committee lit a fire under the market when perceived hawkish language was removed from the official statement. In the days that followed, Ben Bernanke was forced to speak to the issue, and his quote conflicted with the market's view, as he firmly stated that the Fed remained equally concerned about inflation. We believe this Wednesday and Friday could bring the type of data and news that conflicts with the message the market bought into about a month ago.
First of all, if March retail sales benefited from warm weather, April should have suffered from one of the coldest such periods in history. Besides weather, gasoline prices have gradually risen through the period to a current peak, thanks to tight refinery production. At the same time, other prices have continued to rise at a robust pace, including the price of the oft-excluded foods category.
Fluctuations in food prices have historical been discounted because they mostly occured due to seasonal and weather influences. However, as we've been discussing here since early this year, the current trend is different. New uses for food, specifically corn in ethanol production, have driven up the price of foods across the horizontal field and vertical chain. As more acreage is used for corn planting, less is available for wheat and soybean production, driving up the prices of surrogate grains. Increasing costs for feed raise expenditures for protein producers, and we've seen those increases of input costs mostly transferred over to the consumer through higher beef, pork and poultry prices at the market.
While these price pressures have mounted, ARMS loans across the country are triggering adjustments of monthly payment burdens higher for many Americans. Meanwhile, the turmoil within the subprime lending sector, and increasing foreclures and defaults have made a real impact on lending standards. Credit is getting harder to come by, and credit my friends drives American buying power. Evidence of this was provided just last week when General Motors blamed its poor results on its GMAC lending unit, in which it retains a 49% share.
All these factors make this week an especially telling one. Important credit, retail and Fed policy news will reach the market, and potentially awaken it to an increasingly thrifty American consumer. When the American consumer stops spending, that's when you start to see layoffs, weaker ISM results, slowing corporate earnings and recession. We have benefited for quite some time now from American ventures overseas, but American companies and the economy remain mostly driven by American expenditures. This is the basis of our thesis that the economy will weaken into recession this year.
This week...
March consumer credit is scheduled for report at 3:00 p.m. EDT Monday. The consensus of economists surveyed by Bloomberg are looking for consumer credit to expand by $4 billion, after a $3 billion increase in February. Consumer credit growth was as high as $12.4 billion in November, and besides the obvious seasonal driver, the lower level of credit growth now may also be indicative of the pull back by lenders that we outlined above. It may also reflect reduced demand in light of the strain the consumer is already under. In any event, we view a lower number as a negative now.
Overseas, Nicolas Sarkozy won over Socialist Segolene Royal in the race for the presidency of France. This is viewed as a positive for America, as the conservative Sarkozy is seen as a much better fit for business growth. Separately, the United Kingdom is observing a bank holiday Monday.
The SEC is kicking off the first of three roundtable meetings on shareholder rights and federal proxy rules. In the corporate world, Motorola is scheduled to have a well covered annual shareholders meeting, within which Carl Icahn is expected to push for one or more seats on the board. Earnings season is still in progress, and reports scheduled for Monday include A.C. Moore Arts & Crafts (ACMR), Blue Nile Inc. (NILE), Darden Restaurants (DRI), Duquesne Light Holdings (DQE), Fluor Corp. (FLR), Guitar Center (GTRC), Hansen Natural (HANS), HEELY'S INC. (HLYS), Kinross Gold (KGC), McDermott International (MDR), Sotheby's (BID), Sykes Enterprises Inc. (SYKE), TETRA Technologies (TTI), Wynn Resorts Limited (WYNN) and others.
Consumer spending accounts for more than two-thirds of the economy, and Tuesday brings the weekly comparable store sales report, which provides data on major retail chains. The data is provided by the International Council of Shopping Centers and UBS. I do not have any consensus data to offer, but I suggest keeping an eye on this weekly report for signs of a breaking consumer. Also, the Redbook survey is due out Tuesday morning.
At 10:00 a.m., March wholesale inventory is expected by the consensus to have risen 0.4%, compared to 0.5% in February. Since the data is so far lagged, we can expect it to mirror other good news from March regarding inventories.
Tuesday's earnings reporters include 1-800 Contacts (CTAC), Allied Capital (ALD), Allos Therapeutics (ALTH), American Mortgage Acceptance (AMC), Boston Beer Co. (SAM), Brightpoint Inc. (CELL), Church & Dwight (CHD), Cisco Systems (CSCO), CVS/Caremark (CVS), Deutsche Bank (DB), Duke Energy (DUK), El Paso Corp. (EP), Harrah's Entertainment (HET), Henry Schein (HSIC), Jack Henry & Associates (JKHY), Marvel Entertainment (MVL), Paxar Corp. (PXR), Playboy Enterprises (PLA), Priceline (PCLN), Tyco International (TYC), Walt Disney (DIS) and others.
Wednesday will be keyed by the Federal Open Market Committee meeting. The great majority of experts anticipate the FOMC will make no change to the benchmark rate, which stands at 5.25%, but some speculate that indications that the Fed is not considering a rate cut could spark a sell-off. We are not a part of that group, since we expect the market already is aware of the Fed's focus on inflation.
Wednesday's regular report from the Mortgage Banker's Association will likely continue to reflect general malaise within mortage originations, with refinancings driven by rate change. The regular petroleum status report from the Energy Information Administration will be closely followed by energy traders. Recent draws of gasoline have raised concerns for gas prices heading into the seasonal driving season. However, refinery capacity utilization has been on the rise, and there remains hope that stocks may build with some five weeks to go before the official start to the summer season.
Wednesday's earnings reports include Barr Pharmaceuticals (BAR), BioCryst Pharmaceuticals (BCRX), Brooks Automation (BRKS), Foster Wheeler (FWLT), Golden Star Resources (GSS), Hospira (HSP), LCA-Vision (LCA), Mine Safety Appliances (MSA), Pacific Ethanol (PEIX), Precision Castparts (PCP), Ralcorp Holdings (RAH), Service Corp. International (SCI), Stean 'n Shake (SNS), Tasty Baking Co. (TSTY), TEEKAY SHIPPING (TK), Toll Brothers (TOL), Toyota Motor (TM), Universal Compression (UCO), Whole Foods Market (WFMI) and others.
On Thursday, bright and early, we will receive important international trade data. April import prices are expected to have risen by 1.1%, after an increase of 1.7% in March. International trade for March is expected to show a deficit of $60 billion, compared to a deficit of $58.4 billion a month prior. Thursday also brings the weekly jobless claims report, with consensus expectations looking for 315,000 new filings for unemployment. I do not believe the weekly EIA Natural Gas status is what is keeping nat gas prices up these days. It makes more sense that lofty oil prices and their interrelation, and that of coal, in energy generation in the U.S., especially if foreign sources of oil become strained in the future, is what is holding up nat gas. It explains strength in uranium, coal and natural gas over recent times.
Overseas, the European Central Bank is expected by most to hold rates steady, though the press conference that follows may allow ECB President Jean-Claude Trichet an opportunity to foreshadow a future hike. On this same day, the Bank of England is expected to hike rates by a quarter-point. Recent inflation readings justify the increase, in my view and the view of many others that I have seen.
Bear Stearns is holding an interesting conference on Thursday, entitled "Home Prices and the Future of Mortgage Credit." A day after the FOMC meeting, Fed Governor Randall Krozner is scheduled to speak in Chicago, where the local Fed Chief Michael Moskow will be in attendance as well. Earnings reports readied for Thursday include those of Ameren Corp. (AEE), Autobytel.com (ABTL), Biovail (BVF), California Pizza Kitchen (CPKI), Cosi Inc. (COSI), Hillenbrand Industries (HB), Mamma.com (MAMA), Orleans Homebuilders (OHB), NVIDIA (NVDA), PETROHAWK ENERGY (HK), Sara Lee (SLE), THQ Inc. (THQI), Vonage Holdings (VG) and others.
As you may have already guessed, we view the April retail sales report, which is scheduled for 8:30 a.m. EDT Friday release, an important market driver this week. Bloomberg's consensus expects April sales to have risen 0.4%, compared with growth of 0.7% in March. Considering recent months' strength and April's poor weather, we expect a downside surprise, though the consensus clearly expects a growth slowdown already. A reading close to consensus will likely have no impact, but we advise you to pay attention to the trend this month and into the near future, as we expect consumer spending to become the most watched, and spoken of, economic factor in the months ahead.
April's Producer Price Index is also due out at 8:30, and the consensus is looking for an increase of 0.6%, versus 1.0% growth in March. We continue to advise not to throw out the headline figure, despite expert willingness to do so in focusing on the core PPI. We reiterate that secular drivers of food and energy prices make the headline figure more important than the core. In any event, this inflation figure bears watching on Friday.
March business inventories are set for release at 10:00 a.m., and the consensus sees a 0.25% rise, versus a 0.3% increase in February. With international demand strong and the consumer impact not yet driving important enough weakness in domestic demand, business inventories are likely to continue to look favorable for the economy.
Friday's earnings reporters include ALCATEL-LUCENT (ALU), Goldcorp. (GG), Movie Gallery (MOVI), Petrobras (PBR), Novavax (NVAX), Volvo AV (VOLV) and others. We hope you found value in this week's edition, and wish you a great week trading.
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 | 12:06 PM
0 Comments:
Post a Comment
<< Home