The Greek's Week Ahead - Phantom Catalyst, Correct Reaction
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
Bewildered bears got a cold splash of water to the face last week. The poor souls had been wandering the streets like zombies for a few months, confused and dismayed. I was one of them, but a little more patient than most. It just goes to show you that it's not hard to be right, but it's extremely difficult to be right at the precise moment the market agrees with your view. Timing is everything, somebody once said, and clearly timing separates the great market strategists from the pretty good ones. However, even the best of the lot miss on occasion.
Though I agree with the direction equities and bonds set forth upon last week, I disagree with the catalyst driving the move. Generally, the slide was attributed to the rise in interest rates, which is true, but driving interest rates, you have a perception of economic recovery that could fuel inflation. My argument is that inflation is persistent and driven by more complex secular factors, while at the same time the economy should falter post a second quarter bounce. So, in economic recovery, I believe you have a phantom catalyst. Ironically, this phantom catalyst threatens to further fuel the drivers that I see moving the economy towards recession.
Before we discuss the irony of the situation, let's take a closer look at why we believe there exists a phantom catalyst, and why it is a phantom. I have been discussing here for some time the impact of globalization and international demand for American goods and services. As emerging markets develop, there is an increasing need for the products of some of the most important global multinational corporations, many of which are based in America. Thus, manufacturing and the service sector alike have benefited. However, this benefit clouds the domestic picture a bit. Sure, Americans are employed as they serve those overseas clients, and their firms are profiting, but at what cost...
Increasing global demand for a broad range of items from basic materials to the most technical of microchips, and for energy and food, seem set to continue to drive prices higher. I argue that while that persistent inflation exists, it is not the byproduct of a thriving domestic economy. As I've mentioned countless times on this resource, I believe the American consumer is spent. Recently we've seen the signs in weaker than normal retail spending. With fuel and gasoline prices making the cost of everything more expensive, the consumer's discretionary spending is bound to decrease. This is a service sector driven economy, and despite a recently stronger than expected ISM nonmanufacturing measure, I anticipate future data will show a significant decrease in spending.
Rising rates ironically threaten to further weigh on the already stressed consumer. Beyond subprime borrowers, all borrowers and homeowners should feel the impact of rate increase. It decreases housing affordability at the worst of times, and threatens to further drive home prices lower. With home equity decreasing, and liquidity evaporating, credit availability should tighten for Americans, and actually Europeans as well.
So, as manufacturing results and data indicate international demand, we anticipate the phantom footing you have will soon give way. It is the American consumer that butters the bread of American multinationals, and as he decreases spending, even the multinationals that have thrived of late should feel the impact.
In any event, this week provides further insight into inflation and consumer sentiment, so let's take a look at this week ahead...
Monday started the week quietly, outside of the news from Japan that first quarter GDP grew at a faster than expected 3.3% rate and consumer spending increased 3.1%. This is good news for the world, as recent data raised concern that Japanese growth may be faltering.
JP Morgan's Basics & Industrials Conference kicked off in NYC on Monday, while technology firms present at Bear Stearns' Technology, Communications and Internet Conference. At the same time, Goldman Sachs is putting on its Global Health Care Conference in California. Not to be outdone, Deutsche Bank is running its Global Consumer & Food Retail Conference in Paris. Reporting earnings, look for Jos A. Bank Clothiers (JOSB), Luby's Inc. (LUB), Take-Two Interactive Software (TTWO) and a handful of others.
Tuesday brings the weekly same-store sales report from the ICSC-UBS. We have been keeping a close eye on this report, looking for signs of softening consumer spending. Same goes for the Redbook survey that follows.
The Treasury is expected to report a $70.0 billion deficit on Tuesday. Hopefully higher interest rates will keep the Chinese interested in investing in U.S. securities. However, demand could wane if investors believe rates are going to rise further.
Tuesday marks the beginning of earnings reports from the major investment banks. Lehman Brothers (LEH) reports first. Also reporting earnings on Tuesday are Finisar (FNSR), Measurement Specialties (MEAS), RBC BEARINGS (ROLL), Sapient (SAPE), Stewart Enterprises (STEI) and a few others.
May Retail Sales will highlight Wednesday's economic news slate. May sales are expected to recover from the 0.2% decline seen in April. Bloomberg's consensus of economists is looking for a 0.6% rise, and 0.7% less autos. Lest you have forgotten, consumer spending comprises two-thirds of GDP and this should be one of the most important reports of the week. Still, it's June, July and August that concern us, as May could reflect the impact of the decent weather that followed a very cold April.
Import prices, reported at 8:30 EDT, are expected to show a 0.3% rise, versus a 1.3% increase in April. The Mortgage Bankers Association reports weekly changes in purchase and refinance applications, and last week's figures showed a significant decline in activity on higher rates. We expect more of the same this time around. Business inventories are due for release at 10:00 a.m., and expectations are for a 0.3% increase for April, after a decrease in March. This is an important figure, as the market anticipates inventory is positioned to assist near term expansion. The weekly petroleum status report is due as usual, and the Fed Beige Book will provide a look into the economic conditions of the Fed districts.
In New York, Merrill Lynch's Global Transportation Conference is planned, while earnings reports are due from Capstone Turbine (CPST), Casey General Stores (CASY), Spartech (SEH) and a few others.
Thursday's initial weekly jobless claims report will be worth a look, with the consensus expecting 310,000 newly unemployed. Remember, we anticipate new hiring will show the first signs of a loosening up of the job market. Still, we're keeping a close watch on jobless claims as well. Ironically, a weaker number would be better welcomed by the inflation concerned market.
The Producer Price Index for May is expected to show a 0.6% increase, or 0.2% less food and energy, according to Bloomberg. April's data was reassuring to the market as the core measure showed no change, month to month. Remember, the headline figure matters, as food and energy prices are eating into the pocket book of the American consumer. This figure will be highly anticipated, as will Friday's CPI report, and anything showing a less than inflationary outlook will be a relief to equities and interest rates.
The quarterly services survey is also due on Thursday morning at 10:00 a.m. The survey focuses on information and technology related service industries. The fourth quarter showed an increase of 6% year over year and 4.9%, quarter to quarter. The weekly EIA Natural Gas report is set for its usual release on Thursday morning at 10:30. Monetary supply will be reported at 4 p.m.
Bank of America is throwing its Home Builders Conference, while Loews Company has its annual meeting. Investment banks, Goldman Sachs (GS) and Bear Stearns (BSC) are scheduled to report earnings, as are Adobe Systems (ADBE), Del Monte Foods (DLM), Global Crossing (GLBC), MTS Medication Technologies (MPP), Somanetics (SMTS), Stratos Lightwave (STLW) and a few others.
Friday closes out the week with the 8:30 report of the Consumer Price Index. The economists' consensus is looking for a 0.6% increase for May, and 0.2% increase excluding food and energy. Wall Street Greek will focus on the headline figure as always... April showed a 0.4% and 0.2% rise, respectively. Remember, the market is inflation-centric right now, so this data will likely impact equity direction and degree of movement.
The current account deficit reported for the first quarter is expected to measure $201 billion. Also early Friday morning, look for the Empire State Manufacturing Survey to reach 12.5 for June, versus 8.0 in May. Remember, Wall Street Greek anticipates manufacturing will be a lagging indicator of weakness. At 9:15, industrial production is expected to show a 0.2% increase, while capacity utilization is seen measuring at 81.6%. April measured a 0.7% rise and 81.6% utilization. The University of Michigan Consumer Sentiment Survey is expected to reach 87.7 in June, versus 88.7 in May. Your independent equity research provider here expects consumer sentiment to weaken below the consensus level. We hope you found value in this week's copy and look forward to providing your daily reports all week.
Thank you for your interest in our articles. (disclosure)
Bewildered bears got a cold splash of water to the face last week. The poor souls had been wandering the streets like zombies for a few months, confused and dismayed. I was one of them, but a little more patient than most. It just goes to show you that it's not hard to be right, but it's extremely difficult to be right at the precise moment the market agrees with your view. Timing is everything, somebody once said, and clearly timing separates the great market strategists from the pretty good ones. However, even the best of the lot miss on occasion.
Though I agree with the direction equities and bonds set forth upon last week, I disagree with the catalyst driving the move. Generally, the slide was attributed to the rise in interest rates, which is true, but driving interest rates, you have a perception of economic recovery that could fuel inflation. My argument is that inflation is persistent and driven by more complex secular factors, while at the same time the economy should falter post a second quarter bounce. So, in economic recovery, I believe you have a phantom catalyst. Ironically, this phantom catalyst threatens to further fuel the drivers that I see moving the economy towards recession.
Before we discuss the irony of the situation, let's take a closer look at why we believe there exists a phantom catalyst, and why it is a phantom. I have been discussing here for some time the impact of globalization and international demand for American goods and services. As emerging markets develop, there is an increasing need for the products of some of the most important global multinational corporations, many of which are based in America. Thus, manufacturing and the service sector alike have benefited. However, this benefit clouds the domestic picture a bit. Sure, Americans are employed as they serve those overseas clients, and their firms are profiting, but at what cost...
Increasing global demand for a broad range of items from basic materials to the most technical of microchips, and for energy and food, seem set to continue to drive prices higher. I argue that while that persistent inflation exists, it is not the byproduct of a thriving domestic economy. As I've mentioned countless times on this resource, I believe the American consumer is spent. Recently we've seen the signs in weaker than normal retail spending. With fuel and gasoline prices making the cost of everything more expensive, the consumer's discretionary spending is bound to decrease. This is a service sector driven economy, and despite a recently stronger than expected ISM nonmanufacturing measure, I anticipate future data will show a significant decrease in spending.
Rising rates ironically threaten to further weigh on the already stressed consumer. Beyond subprime borrowers, all borrowers and homeowners should feel the impact of rate increase. It decreases housing affordability at the worst of times, and threatens to further drive home prices lower. With home equity decreasing, and liquidity evaporating, credit availability should tighten for Americans, and actually Europeans as well.
So, as manufacturing results and data indicate international demand, we anticipate the phantom footing you have will soon give way. It is the American consumer that butters the bread of American multinationals, and as he decreases spending, even the multinationals that have thrived of late should feel the impact.
In any event, this week provides further insight into inflation and consumer sentiment, so let's take a look at this week ahead...
Monday started the week quietly, outside of the news from Japan that first quarter GDP grew at a faster than expected 3.3% rate and consumer spending increased 3.1%. This is good news for the world, as recent data raised concern that Japanese growth may be faltering.
JP Morgan's Basics & Industrials Conference kicked off in NYC on Monday, while technology firms present at Bear Stearns' Technology, Communications and Internet Conference. At the same time, Goldman Sachs is putting on its Global Health Care Conference in California. Not to be outdone, Deutsche Bank is running its Global Consumer & Food Retail Conference in Paris. Reporting earnings, look for Jos A. Bank Clothiers (JOSB), Luby's Inc. (LUB), Take-Two Interactive Software (TTWO) and a handful of others.
Tuesday brings the weekly same-store sales report from the ICSC-UBS. We have been keeping a close eye on this report, looking for signs of softening consumer spending. Same goes for the Redbook survey that follows.
The Treasury is expected to report a $70.0 billion deficit on Tuesday. Hopefully higher interest rates will keep the Chinese interested in investing in U.S. securities. However, demand could wane if investors believe rates are going to rise further.
Tuesday marks the beginning of earnings reports from the major investment banks. Lehman Brothers (LEH) reports first. Also reporting earnings on Tuesday are Finisar (FNSR), Measurement Specialties (MEAS), RBC BEARINGS (ROLL), Sapient (SAPE), Stewart Enterprises (STEI) and a few others.
May Retail Sales will highlight Wednesday's economic news slate. May sales are expected to recover from the 0.2% decline seen in April. Bloomberg's consensus of economists is looking for a 0.6% rise, and 0.7% less autos. Lest you have forgotten, consumer spending comprises two-thirds of GDP and this should be one of the most important reports of the week. Still, it's June, July and August that concern us, as May could reflect the impact of the decent weather that followed a very cold April.
Import prices, reported at 8:30 EDT, are expected to show a 0.3% rise, versus a 1.3% increase in April. The Mortgage Bankers Association reports weekly changes in purchase and refinance applications, and last week's figures showed a significant decline in activity on higher rates. We expect more of the same this time around. Business inventories are due for release at 10:00 a.m., and expectations are for a 0.3% increase for April, after a decrease in March. This is an important figure, as the market anticipates inventory is positioned to assist near term expansion. The weekly petroleum status report is due as usual, and the Fed Beige Book will provide a look into the economic conditions of the Fed districts.
In New York, Merrill Lynch's Global Transportation Conference is planned, while earnings reports are due from Capstone Turbine (CPST), Casey General Stores (CASY), Spartech (SEH) and a few others.
Thursday's initial weekly jobless claims report will be worth a look, with the consensus expecting 310,000 newly unemployed. Remember, we anticipate new hiring will show the first signs of a loosening up of the job market. Still, we're keeping a close watch on jobless claims as well. Ironically, a weaker number would be better welcomed by the inflation concerned market.
The Producer Price Index for May is expected to show a 0.6% increase, or 0.2% less food and energy, according to Bloomberg. April's data was reassuring to the market as the core measure showed no change, month to month. Remember, the headline figure matters, as food and energy prices are eating into the pocket book of the American consumer. This figure will be highly anticipated, as will Friday's CPI report, and anything showing a less than inflationary outlook will be a relief to equities and interest rates.
The quarterly services survey is also due on Thursday morning at 10:00 a.m. The survey focuses on information and technology related service industries. The fourth quarter showed an increase of 6% year over year and 4.9%, quarter to quarter. The weekly EIA Natural Gas report is set for its usual release on Thursday morning at 10:30. Monetary supply will be reported at 4 p.m.
Bank of America is throwing its Home Builders Conference, while Loews Company has its annual meeting. Investment banks, Goldman Sachs (GS) and Bear Stearns (BSC) are scheduled to report earnings, as are Adobe Systems (ADBE), Del Monte Foods (DLM), Global Crossing (GLBC), MTS Medication Technologies (MPP), Somanetics (SMTS), Stratos Lightwave (STLW) and a few others.
Friday closes out the week with the 8:30 report of the Consumer Price Index. The economists' consensus is looking for a 0.6% increase for May, and 0.2% increase excluding food and energy. Wall Street Greek will focus on the headline figure as always... April showed a 0.4% and 0.2% rise, respectively. Remember, the market is inflation-centric right now, so this data will likely impact equity direction and degree of movement.
The current account deficit reported for the first quarter is expected to measure $201 billion. Also early Friday morning, look for the Empire State Manufacturing Survey to reach 12.5 for June, versus 8.0 in May. Remember, Wall Street Greek anticipates manufacturing will be a lagging indicator of weakness. At 9:15, industrial production is expected to show a 0.2% increase, while capacity utilization is seen measuring at 81.6%. April measured a 0.7% rise and 81.6% utilization. The University of Michigan Consumer Sentiment Survey is expected to reach 87.7 in June, versus 88.7 in May. Your independent equity research provider here expects consumer sentiment to weaken below the consensus level. We hope you found value in this week's copy and look forward to providing your daily reports all week.
Thank you for your interest in our articles. (disclosure)
Labels: Week Ahead
posted by The Greek | 11:54 AM
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