Week Ahead: PPI, CPI & Housing Starts Due

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A relatively light economic data week still includes important reports on inflation and housing. Look for both the monthly Consumer and Producer Price Indexes for the latest take on pricing. The US Federal Reserve might also have something to say on the subject when it issues its latest Federal Open Market Committee (FOMC) Policy Statement on Wednesday afternoon. Investors should also have interest in housing market data coming due this week, with Housing Starts looking to rebound from a recent dip.

Monday

A light economic schedule here at home will be picked up by the release of important data from overseas economic giants. The Bank of Japan (BOJ), for starters, is scheduled to report on the business conditions of its largest manufacturers. Barron's notes expectations for a fourth quarter decline in activity, but one representing a slower rate of deterioration than prior quarters. Just a bit further west, the Bank of England is scheduled to produce its Quarterly Bulletin. Its last report, the BOE's Q3 Quarterly Bulletin offered papers entitled: Global Market Developments through August; Global Imbalances and the Financial Crisis; Household Saving; Interpreting Recent Movements in Sterling; What Can be Said About the Rise and Fall in Oil Prices; BOE Systemic Risk Survey; and the Monetary Policy Roundtable.

A bankruptcy court is scheduled to hear a reorganization plan for the bankrupt Trump Entertainment Resorts (Nasdaq: TRMP). I wonder if Trump fired himself... Monday's earnings report schedule includes news from VeriFone Holdings (NYSE: PAY), Alico Inc. (Nasdaq: ALCO), Somanetics Corporation (Nasdaq: SMTS), Take-Two Interactive Software (Nasdaq: TTWO) and Ten Alps Plc. (LSE: TAL.L).

Tuesday

The American central bank's Federal Open Market Committee (FOMC) kicks off its two-day policy meeting on Tuesday. The US dollar gained last week, moving to EUR/USD 1.4613, from 1.4851. Many run-of-the-mill business reporters attributed the nascent dollar strength to Fed Chairman Bernanke's address to the Economic Club of Washington on Monday, and speculated that the Fed may move to raise rates sooner rather than later. However, while the Chairman is mindful of inflation, he is far from targeting it any time soon. The real driver of dollar strength last week was Standard & Poor's warnings to Greece and Spain, two European Union members. See our Wednesday commentary to read more on the FOMC Policy Statement due that day.

Speaking of inflation, a metric used to measure it will be reported at 8:30 AM on Tuesday. The Producer Price Index (PPI) measures prices of capital and consumer goods received by producers. Bloomberg's survey of economists forecasts PPI will increase 1.0% for November, comparing unfavorably with October's 0.3% increase. Last week, we noted November's big bump up in natural gas prices, along with the more modest gain in petroleum. This looks to be the important factor in the monthly Headline PPI data as well. Since food and energy prices tend to swing this monthly reading significantly, the Producer Price Index is also measured excluding the two factors. Core PPI, the metric that incorporates this adjustment, is seen increasing just 0.2%. Core PPI fell 0.6% in October.

The New York Federal Reserve will produce its Empire State Manufacturing Survey at 8:30 on Tuesday. Economists see the General Business Conditions Index gaining modestly to 25.0, from 23.51 reported in November. Still, last month's new orders component of the overall metric slipped significantly, portending a drop might occur in the GBCI this month. Whatever the case, there would seem little likelihood for an improved state of New York manufacturing in December.

The International Council of Shopping Centers (ICSC) reports on Weekly Same-Store Sales in the premarket. Last week's report showed that sales fell 1.3% in the week ending 12/5. The sales pace also slowed when compared against the prior year period, rising only 2.6% in the latest check. Over the past few weeks, this year-to-year take has ranged above 3.0%.

Treasury International Capital (TIC) is due for release at 9:00 AM. September's report showed $40.7 billion of net foreign purchases of long-term securities.

At 9:15, look for Industrial Production for the month of November. This data has been improving, and further gains are expected. Production is seen improving 0.6% in November, after gaining 0.1% in October. As economic demand resumes, and with production and workforce having been cut to bare bones count, gains in this economic data point offer reason for hope in labor trends as well. Capacity Utilization is expected to improve to 71.2%, up from 70.7%.

Finishing off a busy day, look for the National Association of Home Builders' Housing Market Index at 1:00 PM. The HMI held steady at 17 against a revised November mark of equal misery. Home Builders gained enthusiasm thanks to the First-Time Homebuyer Tax Credit boost to home sales, but sales petered out a bit when demand that had been pushed forward proved absent later.

Tuesday's EPS schedule includes news from Best Buy Co. (NYSE: BBY), Adobe Systems (Nasdaq: ADBE), Park 24 Corp. (OTC: PKCOF.PK), Compagne Des Alpes (Paris: CDA.PA), F&C Global Smaller (LSE: FCS.L), Renovo Group (LSE: RNVO.L), Scott Wilson Group (LSE: SWG.L), WiLan (Toronto: WIN.TO) and Mittel (Milan: MIT.M).

Wednesday

The Federal Open Market Committee (FOMC) is slated to make its Policy Statement at 2:15 PM ET. Economists agree the US Federal Reserve committee will keep rates steady at 0.0% - 0.25%, and so all eyes will focus on the wording of the Fed's Policy Statement. Chairman Bernanke has not been in hiding, and so we do not expect a much-varied outlook nor plan from the Fed group this week. Still, traders tend to seek out reason to move in the short-term, and so their interpretation will matter more than the news itself – on Wednesday at least.

Housing Starts are due at 8:30. After dipping significantly in October to an annual pace of 529K, Bloomberg's consensus of economists sees Starts recovering to a still meager rate of 575K in November. We have our suspicions, as the real estate market took a notable step backwards tied to the tax credit expiration. As discussed in our related work, we would not look for immediate restoration post its renewal and expansion. We should note that the drop in October was led by a 34.6% decline in Multi-Family Starts, so there may also be a tie to commercial real estate woes. We imply that developer market overlap between commercial and multi-family development may be impacting larger building construction as capital constraints come to play as well.

Consumer Prices are due for report Wednesday, with November's Consumer Price Index (CPI) release. Energy price rise, namely in natural gas, played great role in leading Headline CPI up 0.3% in October. Though Core CPI still increased 0.2%. Expectations for November are for a 0.4% Headline rise and for a more modest 0.1% Core CPI increase.

Perhaps indicative of the real impact of First-Time Homebuyer Tax Credit expansion and extension, mortgage application activity improved at last report despite higher mortgage rates. But news buyer beware, as perhaps imperfect adjustment for the Thanksgiving Day holiday played a role as well; we would bet on the latter. The Market Composite Index gained 8.5%, with the Purchase Index improving 4.0%. The Refinance Index gained 11.1%, despite increases in contracted 30-year and 15-year fixed rate mortgages to 4.88% (from 4.79%) and 4.33% (4.27%), respectively.

The US Department of Commerce reports on the Q3 Current Account at 8:30. In the second quarter, weakened domestic demand led the Current Account to its lowest point when measured as a percentage of GDP since 1991. The deficit in trade narrowed to $98.8 billion in Q2, from $101.5 billion in Q1.

The weekly Petroleum Status Report is due for its usual 10:30 release. Last week's report, covering the period ending on December 4, showed crude oil inventory decreased by 3.8 million barrels. As the wind chills, distillate fuels should see seasonal draw. However, distillate fuel inventories increased by 1.6 million barrels last week. We would start looking for draws here in the weeks ahead. Gasoline stocks experienced a 2.2 million increase through the week.

The Czech Republic, Sweden and Norway's central banks weigh in on local key interest rates Wednesday. There is a focus on Europe since last week's pressure on Spain and Greece, and so this will not go unnoticed like it might normally have.

Wednesday's corporate earnings schedule includes reports from Hovnanian Enterprises (NYSE: HOV), Apogee Enterprises (Nasdaq: APOG), Joy Global (Nasdaq: JOYG), China Gas Holdings (OTC: CGHOF.PK), Crossroads (OTC: CRDS.PK), Aurubis (Frankfurt: NDA.F), Heiler Software AG (Frankfurt: HLR.F), Gifi Villeneuve (Euronext: IGF.PA), Manutan Int’l (Euronext: MAN.PA) and Zodiac Group (Euronext: ZC.PA).

Thursday

Weekly Initial Jobless Claims headlines the morning wire with its 8:30 release. Recent data has illustrated a "less bad" shedding of jobs. Still, last week's 474K new unemployment benefits filings were far from enthusing on an absolute basis. Economists are looking for 465K new filings for the current period. The lower estimate looks to be based on even lower results in recent weeks and a trending lower four-week moving average. We expect the pace of filings to improve, as gains in consumer spending and production should eventually spur employer needs for new hires (given significant cuts undertaken through the decline).

Leading Economic Indicators will be reported for the month of November at 10:00 AM ET. Economists are looking for a gain of 0.7%, as compared against the 0.3% improvement in October. Positive GDP in Q3 should see follow up in Q4, so LEI gains here are not surprising. Look for our 2010 economic forecast though, as we do not see clear sailing for the coming year. Still, as we have outlined here in the past, recent LEI data have been greatly crutched by government stimulus. We have not achieved independent economic stability as yet.

The European Central Bank (ECB) holds a non-policy meeting on Thursday. While there will be no interest rate nor other action, the global marketplace will certainly be attentive to this meeting post the recent credit warnings issued to Spain and Greece.

The Philadelphia Fed Survey, due at 10:00, offers another look at the Northeast regional manufacturing situation. The Empire State Report will be published earlier this same week, and so we will look for consistencies. The Philly Fed Index is seen slipping only modestly to 16.5, from 16.7 in November. Also, the Federal Reserve will report on its balance sheet in the late afternoon.

At 10:30, look for the EIA's Natural Gas Report. This weekly take on natural gas stores showed a net draw of 64 Bcf in the week ending December 4. Stocks were still 513 Bcf above the five-year average for this time of year.

Thursday's EPS schedule includes some significant names. Look for data from Darden Restaurants (NYSE: DRI), FedEx (NYSE: FDX), General Mills (NYSE: GIS), Nike (NYSE: NKE), Actuant (NYSE: ATU), Pier 1 Imports (NYSE: PIR), Rite Aid Corp. (NYSE: RAD), Winnebago (NYSE: WGO), Research in Motion (Nasdaq: RIMM) and several foreign reporters.

Friday

It's Quadruple Witching, meaning: a day on which contracts for stock index futures, stock index options, stock options and single stock futures all expire. Trading volatility tends to increase during such haunts.

The Bank of England (BOE) will produce a report on financial stability and a second on trends in lending.

The earnings schedule includes data from CarMax (NYSE: KMX), Kappahl Holding (Stockholm: KAHL.ST) and TK Development (Copenhagen: TKDV.CO)


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