After an $81 billion refunding this week, the U.S. government securities market turns its attention in the coming week to the state of the economy and what that portends for Federal Reserve monetary policy.
Fed Chairman Ben Bernanke is scheduled to speak before the Economic Club of New York on Monday at 12:15 p.m. (1715 GMT). He is likely to reinforce the theme that the central bank will have rates on hold for an extended period.
Fed governors, including the two leading hawks, have been consistent in a dovish view of ample slack, lack of credit creation, impending bank problems with commercial real estate, and deflation being more of a risk than inflation, said David Ader, head of government bond strategy at CRT Capital Group LLC. To read anything other than the Fed being on hold for an extended period is entirely missing the point.
Of key interest as the economy shifts into the holiday shopping season is the mood consumers are in. The market got a gloomy reading on that from the Reuters/University of Michigan preliminary November consumer sentiment report on Friday.
On Monday, markets will get data on consumers' actual behavior in the government's report on October retail sales.
Economists polled by Reuters estimate retail sales rose 0.9 percent in October, following a 1.5 percent drop in September that was influenced by the end of government incentives to buy automobiles. Excluding autos, retail sales were estimated to have risen 0.4 percent in October after a 0.5 percent September increase.
If retail sales turn out stronger than expected, that would hurt bond prices. In contrast, a weaker than forecast sales picture would likely boost bond prices.
Data on producer and consumer prices are due on Tuesday and Wednesday, respectively, and will be looked at for reassurance that bounteous capacity in the economy has, at least for now, immunized the economy against inflation that might otherwise be fed by the Fed's ample funding of the banking system.
Inflation is anathema to the bond market because it erodes the purchasing power of income from fixed-income securities.
Core producer prices, i.e. prices excluding food and energy items, are estimated to have risen 0.1 percent in October after a 0.1 percent decline in September. They are estimated to have risen just 1.4 percent from a year ago, compared with a 1.8 percent year-over-year rise as of September.
Core consumer prices, due on Wednesday, are estimated to have risen 0.1 percent in October after a 0.2 percent September increase. Since a year ago, they are thought to have risen 1.6 percent as of October, versus 1.5 percent as of September.
The inflation trend remains subdued and the recovery isn't setting any speed records and this will let Bernanke extend the Fed's low rates policy for a while longer, said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi.
Investors are preoccupied with the state of the housing market because it led the economy into the recession and because home values have a profound impact on household balance sheets and consumers' willingness to spend. Because of that the bond market will closely analyze October housing starts data due on Thursday and expected to show a slight increase to an annualized 0.6 million from 0.590 million in September.
As closely tied to consumers' sense of well being as the housing sector is the state of the job market. Thus, the weekly count of new jobless claims will draw investors' attention. Economists polled by Reuters offered a median estimate of 505,000 new claims for the week ended November 14, up slightly from 502,000 a week earlier.
With the labor market set to remain weak for some time, confidence is likely to remain subdued and consumers will remain reluctant to spend, said Paul Dales, U.S. economist at Capital Economics in Toronto. The failure of consumers to join the party is the main reason why we think the economic recovery will fade late next year.
A November reading on the manufacturing sector, a part of the economy that has begun to show signs of life, arrives on Thursday from the Federal Reserve Bank of Philadelphia. Its business activity index is expected to be little changed at 12.0 after a reading of 11.5 in October.
(Editing by Kenneth Barry)