Week Ahead: Detroit Doubles Back to DC

By The Greek - Economy & Markets

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Just a week since the Detroit three were ridiculed by Congress and sent home to draw up a plan, they're scheduled to return. General Motors (NYSE: GM) CEO Rick Wagoner only just got one before his board, so his firm's workforce better hold their breath and hope it doesn't need to be redrawn. One thing working in the automakers favor this week should be a horrible November Motor Vehicle Sales Report. There's a chance it could be troubling enough to stop Congressional criticism and set a bailout bill in motion.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Last Week

Five days and counting! The market somehow managed to put together five sequential days of positive performance, most of it last week. We'll overlook the fact that it got a breather on Thursday and squeezed through a half-day on Friday.

While the week was short, a great many economic reports were crammed in like turkey stuffing. This made last Wednesday an especially busy one for economists. We knew the two big reports coming into the day, and even the week, would be Personal Spending and Durables Goods Orders. We even warned about the two in last week's "week ahead" article. The data was at least as horrible as we thought it would be, and yet the stock market managed its fourth sequential positive return nonetheless.

Durable Goods Orders were reported down 6.2% in October, versus a consensus expectation for a 2.6% decline. Business activity dropped off so far in October that economists undershot by a mile. Perhaps, like us, you were curious as to what exactly 6.2% translates to you. Well, the dollar figure difference from month to month was $12.7 billion. That's not chump change, and represents a ton of lost business caused by either demand decline or fear rattled ordering by business operators.

Transportation orders declined 11%, but orders ex-transportation were still down 4.4%. Inventories also increased, and were at the highest levels since 1992. However, that has a lot to do with the current size of the economy as compared to 1992. A troublesome aspect we picked out of the report showed that capital goods orders declined 7.7%, and made up a heavy portion of total order shortfall. Motor vehicle orders fell 4.4%, but the absolute sum was less startling. Primary metals orders were also down significantly, perhaps anecdotally evident in ArcelorMittal's (NYSE: MT) recent warning of U.S. layoffs.

Personal Spending fell 1.0% in October, worse than economists foresaw via their 0.9% estimated decline. The drop also extended further than September's decline of 0.3%, and it marked the worst such slide since 2001, which came just after September 11th. Some of the decline in spending could be attributed to lower energy prices; the figure of course is made of two components, one of which is price.

The pace of new home sales also touched a 17-year low in October. Meanwhile, weekly jobless claims stuck above the "fear threshold" of 500K, and took the four-week moving average higher. So, then, we wonder, how long can stocks fight the tide...

The Week Ahead

Unfortunately, this week brings a slew of monthly employment reports. Thus, we have more bad news in store, meaning stocks' recent run will likely come to an abrupt end. On the positive front, the ECB is expected to issue a 50 basis point rate cut, while the Bank of Japan is anticipated to hold an emergency meeting of its own.

Monday

The theme on Monday is likely to be federal government focused. President-Elect Obama is expected to hold a press conference through which he will introduce Senator Hillary Clinton as his Administration's Secretary of State. All is well again in Dem-land.

The Fed fun doesn't end there though. Treasury Secretary Paulson is scheduled to update us on the progress (hopefully improvement) of financial markets and the TARP. Meanwhile, Federal Reserve Chief Bernanke and Dallas Fed Boss Fisher are set to talk up the U.S. economic outlook.

There are two economic reports scheduled for Monday release, both of which have been regular conveyers of bad news. The ISM Manufacturing Report should prove no less miserable than the regional Fed data from New York, Philly and Chicago. At 10:00 a.m., therefore, economists forecast the index will have deteriorated in November to 38.4, from a level of 38.9 in October.

Also at 10:00, Bloomberg's consensus of economists sees October Construction Spending down 0.9%, versus a drop of 0.3% in September. This should also be no surprise, as it coincides with sentiment from the National Association of Home Builders and New Home Sales data.

Not without notice, the world seems to have become quite dangerous a powder keg since Russia's August endeavor into Georgia. On Monday, take note as North Korea closes its land borders with the South.

The day's earnings schedule highlights news from Female Health (AMEX: FHC), Inergy Holdings (Nasdaq: NRGP), Ingles Market (Nasdaq: IMKTA), Linktone (Nasdaq: LTON), On Track Innovations (Nasdaq: OTIV), Qimonda (NYSE: QI), Shanda Interactive (Nasdaq: SNDA) and Unica Corp. (Nasdaq: UNCA).

Tuesday

November Motor Vehicle Sales highlight Tuesday. It would be a great feat in futility, should the industry outdo its October shutdown (read show even more poorly). Economists don't expect that though, as Edmunds.com indicates sales should edge higher. Even so, aggregate levels should be well below the year ago water mark. Depending on how bad things get, the recent bounce in auto stocks might see retest. In anticipation of a federal handout, I kind of like Ford (NYSE: F) should that retest occur. I would think about buying in as Congressional criticism continues and on more bad November sales news. Then consider taking your cost and a bit of profit out on the news of a fed distribution (after momentum takes the price for a ride). The long run still looks questionable for autos, considering the depth of economic recession expected and the scar lending bears from years past. These companies might need more money six months down the road if they don't approach the current environment in sober enough fashion.

The weekly same-store sales report drifted deeper into oblivion last week. We've been reporting on, and accurately forecasting the demise of the weekly tally from the International Council of Shopping Centers. (See the ICSC table via the link to our Black Friday article). The holiday and position of Black Friday might play noise into the data this week, but we see little chance for Black Friday to prove stronger than last year's. While traffic was likely higher, prices were also likely further reduced than usual, with discounts more broad reaching. We're more confident in prices having been impacted by the state of the economy than we are in more bargain hunting foot traffic having materialized, so look for bad news here as well.

Philadelphia Fed President Charles Plosser is scheduled to discuss the economic outlook on Tuesday. The president of the Nasdaq OMC is also scheduled to speak to the Japan Society. Overseas, the Bank of Australia, which cut dramatically at last opportunity, is seen cutting rates significantly again on Tuesday.

Volvo (OTC: VOLVY.PK) and Ecolab (NYSE: ECL) have investor days scheduled. The day's earnings schedule keys on Beazer Homes (NYSE: BZH), Sears (Nasdaq: SHLD), Staples (Nasdaq: SPLS), America's Car-Mart (Nasdaq: CRMT), Bank of Nova Scotia (NYSE: BNS), Beacon Roofing (Nasdaq: BECN), Cossette Communications (NYSE: KOS), Gladstone Capital (Nasdaq: GLAD), Isle of Capri Casinos (Nasdaq: ISLE), Landauer (NYSE: LDR), Marvell Technology (Nasdaq: MRVL), Omnivision (Nasdaq: OVTI), Sigma Designs (Nasdaq: SIGM), Solarfun Power (Nasdaq: SOLF) and Sonic Foundry (Nasdaq: SOFO).

Wednesday

The parade of monthly employment reports begins on Wednesday, followed up by news scheduled from the Fed in the afternoon. Thus, there shouldn't be a moment to relax. The day begins with the early morning Challenger Job Cuts Report. Challenger tracks announced corporate layoffs on a monthly basis, and the last check showed layoffs intensified to a level of 112,884 in October, from a still hot 95K September level. Things likely got worse in November, in our view.

At 8:30, look for ADP Employment Services to post its regular accounting of the net additions/subtractions of jobs from the private sector. October's data showed a huge deterioration of the job market, with a reported 157K jobs lost.

The day offers the revision of the quarterly Production and Costs Report. Q3 is seen revised lower, to a 0.9% increase in productivity, from the initial reporting of 1.1% growth. Unit Labor Costs are seen 3.6% higher, as initially reported. The only other pre-market report is the regular Mortgage Activity data from the Mortgage Bankers Association. Lower rates are finding offsetting impact from increasing unemployment though. No amount of stimulus will spur lending if natural demand for loans drops due to unemployment.

The Non-Manufacturing Survey (a.k.a. service sector measure) is scheduled for 10:00 a.m. release by the Institute for Supply Management (ISM). Bloomberg's consensus is looking for a poor reading of 43.0, versus 44.4 in October.

In the afternoon, at 2:00 p.m., the Federal Reserve will release its Beige Book survey of regional economic conditions for November. Richmond Fed President Jeffrey Lacker is scheduled to discuss financial conditions and the economic outlook. Also, the SEC is having an open meeting. In other words, there will be plenty of data and news to chew on Wednesday, including the EIA Petroleum Status Report at 10:30. In that regard, news from OPEC will play much heavier in the price action of the commodity this week.

FirstEnergy (NYSE: FE) and Tesoro (NYSE: TSO) have scheduled analyst meetings, and the earnings slate highlights news from Aeropostale (NYSE: ARO), Aerovironment (Nasdaq: AVAV), Alloy (Nasdaq: ALOY), Astro-Med (Nasdaq: ALOT), Casella Waste (Nasdaq: CWST), Casey's General Stores (Nasdaq: CASY), Collective Brands (NYSE: PSS), Copart (Nasdaq: CPRT), Del Monte Foods (NYSE: DLM), Diamond Foods (Nasdaq: DMND), Dynamex (Nasdaq: DDMX), Financial Federal (NYSE: FIF), Infineon (NYSE: IFX), Jo-Ann Stores (NYSE: JAS), PLATO Learning (Nasdaq: TUTR), Synovis Life Technologies (Nasdaq: SYNO) and XETA Technologies (Nasdaq: XETA).

Thursday

Thursday will be just as busy as Wednesday, if not more so. First thing in the morning, look for Monster Worldwide's (Nasdaq: MNST) Monster Employment Index, its metric of online job availability. October's reading dropped 10 points off September, to 150, and things only got worse last month on the job front. While we're on the subject, the weekly jobless claims data is due at its usual 8:30 reporting time. Claims were recorded at 529K last week.

Important news will arrive from across the pond on Thursday morning, so keep your eye out for the result of the monetary policy meetings of the European Central Bank (ECB) and the Bank of England (BOE). The BOE and ECB are seen cutting rates, and analysts have been speculating that a 50 point move is likely out of the ECB.

Retailers will report their individual chain store sales on Thursday for the most part, though some report earlier. Barron's notes a poll by Thomson Reuters indicating analysts' expectations for a 2.4% decrease in November sales. Nothing we've seen out of the ICSC indicates sales have the slightest chance of posting an increase, so it's the magnitude of slide that is in question. In other words, bad news is likely here; and however expected it may be, this is one data point that should not prove meaningless to the numbed market.

Factory Orders for October are due at 10:00 a.m. Bloomberg's consensus sees October orders down 2.8%, but Barron's has consensus pointing to a 4.3% drop. The result compares against September's decline of 2.5%. The EIA's Natural Gas Report is on schedule at 10:35.

Sheila Bair, the FDIC Chief who we thought should have been the new choice to lead the Treasury, is due to key-note the American Banker's award dinner. I guess the deciding criteria this year will be who lost the least money.

Prudential Financial (NYSE: PRU), Starbucks (Nasdaq: SBUX), Merck (NYSE: MRK) and NCR (NYSE: NCR) have investor days scheduled for Thursday. The earnings schedule highlights news from Toll Brothers (NYSE: TOL), Smithfield Foods (NYSE: SFD), American Software (Nasdaq: AMSWA), Argon (Nasdaq: STST), Canadian Imperial Bank (NYSE: CM), Cascade Corp. (NYSE: CAE), Comtech Telecommunications (Nasdaq: CMTL), Gerber Scientific (NYSE: GRB), Guess (NYSE: GES), Hayes Lemmerz (Nasdaq: HAYZ), Jackson Hewitt Tax Service (NYSE: JTX), Kewaunee Scientific (Nasdaq: KEQU), Layne Christensen (Nasdaq: LAYN), Liquidity Services (Nasdaq: LQDT), Magma Design Automation (Nasdaq: LAVA), ModusLink Global Solutions (Nasdaq: MLNK), Movado (NYSE: MOV), Novell (Nasdaq: NOVL), Quanex (NYSE: NX), Sanderson Farms (Nasdaq: SAFM), Sirona Dental (Nasdaq: SIRO), SoftBrands (NYSE: SBN), Toronto Dominion (NYSE: TD), UTi Worldwide (Nasdaq: UTIW), Williams-Sonoma (NYSE: WSM) and Wind River Systems (Nasdaq: WIND).

Friday

Friday is all about the Employment Situation Report. Last month marked a four-tenths increase in the unemployment rate. This month, economists expect unemployment to move up another two-tenths, to 6.7% (November). Now, have a seat and take a breath. Nonfarm payrolls are seen shedding 300K jobs in November. That'll compare against October's 240K loss. It sure does seem like now that the presidency has been decided, perhaps a little fudge has come off of the number crunching. Dramatic losses and revisions of losses coincided perfectly with the election, and there's been plenty to be suspect of throughout the campaign. From the President's smoke blowing to the birth/death rate adjustment, we've had plenty of reason to doubt. If so, we have to congratulate the Republicans (a group I've been included within for my entire voting life - recently converted to Independent though) for accurately accounting for the impact of the economy on the election.

At 3:00 p.m., Consumer Credit is seen having increased $2.4 billion in October, after rising by $6.9 billion in September. After being approved by the Fed recently, Bank of America (NYSE: BAC) and Merrill Lynch (NYSE: MER) shareholder votes will decide if the two will consummate their proposed merger.

Hartford Financial (NYSE: HIG) has an investor day scheduled, and the earnings slate highlights news from Big Lots (NYSE: BIG), Blyth (NYSE: BTH), Johnson Outdoors (Nasdaq: JOUT), Logility (Nasdaq: LGTY), OYO Geospace (Nasdaq: OYOG), Rosetta Genomics (Nasdaq: ROSG) and Royal Bank of Canada (NYSE: RY).

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