The recent market rally has solely been based on optimism that the worst is behind us. Continued hand holding by the governments, a few better-than-expected economic readings and positive guidance lent support to the view that the global economy is on track to stage a recovery. Last week, the Japanese government doled out a 15.4 trillion yen stimulus package, which is primarily in the form of spending and tax cuts.
Another thinking behind the market buoyancy is that the negative responses to bad news are having smaller impacts, which go on to suggest that people are getting adjusted to the negative developments in the economy. According to Joel Naroff from TD Bank, the adjustment is the start of changing the course of the economy.
Most of the economic reports released last week are suggestive of still-wobbly conditions of the economy. The U.S. trade balance for February declined unexpectedly to $26 billion from $36 billion, as imports fell 5.1% and exports rose 1.6%. It was the first time since July last year that exports showed an increase. The decline in deficit is a positive to first quarter GDP, and is likely to add 1.5 percentage points. The rise in exports may have been due to stimulus spending outside the U.S. However, the decline in imports should be a cause of concern as it shows that domestic demand hasn't picked up.
Wholesale inventories, which make up a quarter of business inventories, showed a bigger-than-expected drop of 1.5% in February. Economists had expected a mere 0.7% monthly decline. Meanwhile, wholesale sales rose by 0.6%, rendering the wholesale inventories to sales ratio to 1.31 from a revised 1.34 in January.
Meanwhile, the U.S. Federal Reserve said consumer credit declined at an annual rate of 3.5% in February, with the revolving credit tied to credit card loans declining by 9.7%, while non-revolving credit rose by 0.2%.
Although the jobs data of the past week showed a drop in weekly jobless, the level of new filing still remaining elevated at 654,000. Continuing claims for the week ended 27th rose to a record high of 5.84 million.
The week also saw the release of the minutes of the March FOMC meeting, which showed that the Fed cut its near-term outlook for growth and inflation, as it sees little support from exports and therefore believes that downside risks to the outlook remained significant in the near term.
The FOMC members believe that purchases of Treasuries will have effects across a variety of long-term debt markets and should ease financial conditions generally. Additionally, the Fed seems to think that direct purchases of mortgage backed securities and agency debt will help bolster the housing sector.
The unfolding week's calendar is very heavy, with a host of economic reports scheduled to be released during the week. The Commerce Department's retail sales report for March, the housing starts report for March, the University of Michigan's consumer sentiment report for April, the Federal Reserve's industrial production report for March, and the April manufacturing surveys of the New York Federal Reserve and the Philadelphia Federal Reserve are the key economic reports traders could turn their focus on.
Some significance may also be attached to the Fed's Beige Book, the National Association of Homebuilders housing market index for April, the Commerce Department's business inventories report for February and the Labor Department's producer price inflation and consumer price inflation reports for March. The markets may also stay focused on the Fed speeches scheduled to be delivered during the week, including the one by Federal Reserve Chairman Ben Bernanke.
Retail sales are likely to record a gain for the second consecutive month, as low interest rates, easing credit conditions and recovering consumer confidence did their bit to boost spending even as employment conditions deteriorated and households still grapple with the loss of household wealth. Additionally, light vehicle sales perked up and weekly chain store sales hadn't been as worse as expected. All these bode well for retail sales. However, State Street Global Advisors do not rule out the possibility of slight weakness due to seasonal adjustments related to the late Easter.
Meanwhile, industrial production could see more downside, as manufacturing conditions still remain in a limbo. The Institute for Supply Management's manufacturing index was entrenched in recession zone despite the modest uptick in March.
Excess home inventories and depressed builder confidence are likely to remain bottlenecks for construction activity. Housing starts are likely to show a drop after February's unexpected strength although they may still come in above the record low level in January.
There are no important economic reports scheduled to be released on Monday.
The U.S. Labor Department is scheduled to release a report on the producer price index for March at 8:30 AM ET on Tuesday. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for March to show an unchanged reading and the core reading to show 0.1% growth.
Producer prices rose 0.1% in February following 0.8% growth in January, while the core producer price index rose 0.2%. Economists had expected the headline index to show 0.3% growth and the core reading to show 0.1% growth.
Food prices fell 1.6% compared to a 0.4% decline in the previous month. Energy prices rose 1.3% following a 3.7% increase in the previous month. On a year-over-year basis, the producer price index fell an unadjusted 1.3%. Inflation pressures in the pipeline continued to wane, as intermediate food and energy prices slid 1.4% and 2%, respectively.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 AM ET on the same day. Economists estimate a 0.3% growth in the retail sales for March, while they estimate a 0.1% increase in retail sales, excluding autos.
Retail sales edged down 0.1% month-over-month in February following an upwardly revised 1.8% increase in January. Economists had estimated a 0.5% decline for February. On a year-over-year basis, retail sales were down 8.7%.
Sales, excluding autos, rose 0.7%, adding to the upwardly revised 1.6% growth in the previous month. The gain was unexpected, as economists estimated a 0.1% drop in retail sales, excluding autos. Sales at motor vehicle & part dealers fell 4.3%compared to the previous month and they declined 23.5% from the year-ago period.
Sales at electronics & appliance stores rose 1.2% compared to a 7.5% increase in the previous month. Sales at gasoline station sales rose 3.4% compared to a 2.9% increase witnessed in the previous month.
The Commerce Department is scheduled to release its business inventories report for February at 10 AM ET on the same day. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 1.1% decline in business inventories for the month.
Business inventories fell by 1.1% in January. The December reading was revised down to a 1.6% drop from the 1.9% drop estimated earlier. Business sales declined by 1%, keeping the business inventories to sales ratio unchanged at 1.43, matching the highest levels seen since September 2001.
The consumer price index for March is scheduled to be released at 8:30 AM ET on Wednesday. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The consensus estimates call for 0.2% growth in the consumer price index and a 0.1% rise in the core consumer price index that excludes food and energy.
The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 AM ET on the same day. The headline general business conditions index for April is expected to come in at -35.
The general business conditions index fell to a new record low of -38.2 from -34.7 in February. Economists expected a modest improvement in the index to -32.
The new orders and the shipment indexes fell to a new low and the inventories index fell to its lowest level since 2001. The employment indexes remained close to their recent lows. The future indexes were somewhat higher than in February, but the six-month outlook continued to be subdued.
The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for February at 9 AM ET on the same day.
The industrial production report of the Federal Reserve is due out at 9:15 AM ET on the same day. Economists estimate that industrial production declined 0.9% in March, while capacity utilization is expected to come in at 69.7%.
The industrial production report for February showed a 1.4% drop in industrial output. Although auto production rose 10.2% following 4 months of declines, a drop in the output in computer manufacturing, utilities and products, excluding defense, offset the gain. Capacity utilization continued to decrease, with the current rate of utilization being 10 percentage points below the average of 1972-2008.
The National Association of Homebuilders' is scheduled to release the results of their survey on homebuilders' confidence at 1 PM ET on the same day.
The housing market index remained unchanged at 9 in March, according to a report released by the National Homebuilders Association. The index was about 1 point above the record low of 8 in December and January. The index gauging current sales conditions held steady at 7 and the index gauging sales expectations in the next six months also remained at a record low of 15. However, the index gauging traffic of prospective buyers declined 2 points to 9.
The Federal Reserve is due to release its Beige Book, which is a compilation of anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts, at 2 PM ET. The report is normally released about two weeks before the monetary policy meeting is held.
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which is the number of permits issued for new housing units each month, is slated to be released at 8:30 AM ET on Thursday. Economists estimate housing starts of 550,000 for March.
Housing starts rose 22.2% month-over-month to a seasonally adjusted annual rate of to 583,000 in February. Economists estimated housing starts of 450,000 for the month.
On a year-over-year basis, housing starts declined 47.3%. Meanwhile, building permits, an indicator for future housing activity, rose 3% to a seasonally adjusted annual rate of 531,000. Annually, building permits were down 44.2%.
The Labor Department report on the number of individuals claiming unemployment benefits during the week ended April 11th is scheduled to be released at 8:30 AM ET on Thursday.
Jobless claims declined by much more than analysts had expected in the week ended April 4th compared to an upwardly revised reading for the previous week.
The report showed that jobless claims fell to 654,000 from the previous week's revised figure of 674,000. Economists had been expecting claims to decline to 660,000 from the 669,000 originally reported for the previous week. The four-week average also declined 750 to 657,250.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 AM ET on the same day. Economists expect the diffusion index of current activity to show a reading of -32 for April.
Conditions in the manufacturing sector in the region improved in March from the month-ago levels, although remaining extremely weak. The diffusion index of current activity rose to -35 in March from -41.3 in February, while the new orders index fell 10 points to -40.7, its lowest level since July 1980.
The inventories index tumbled to a record low of -55.6 from -24.3 in the previous month, while the current employment index declined 6 points to -52. The prices paid index fell to a record low of -31.3. Meanwhile, the future general activity index remained positive, but it edged down 1.4 points to 14.5.
The Energy Information Administration is due to release its weekly oil inventory report at 10:30 AM ET on Thursday, a day later than its usual scheduled date of Wednesday on account of the 'Good Friday' public holiday.
The oil inventory report for the week ended April 3rd showed a smaller-than-expected build in crude oil inventories. The report for the week ended April 3rd showed that crude oil inventories rose by 1.7 million barrels to 361.1 million barrels and were above the upper limit of the average range.
Gasoline inventories increased by 0.6 million barrels and were above the upper limit of the average range. However, distillate stockpiles fell by 3.4 million barrels, but were above the upper limit of the average range. Refinery capacity utilization averaged 81.9% over the four-weeks ended April 3rd compared to 82.1% in the previous week.
Atlanta Federal Reserve Bank Dennis Lockhart is due to speak at an annual conference at Levy Economics Institute of Bard College in New York at 12:15 PM ET.
San Francisco Federal Reserve Bank President Janet Yellen is scheduled to deliver a dinner speech to an annual conference at Levy Economics Institute of Bard College in New York at 7:30 PM ET.
The Reuters/University of Michigan's preliminary report on the consumer sentiment index for April is scheduled to be released at 10 AM ET on Friday. Consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 58.5 from 57.3 in the previous month.
Bernanke is due to deliver a keynote speech at the Kansas City Federal Reserve Bank's conference on Innovative Financial Services for the Underserved at 12 PM on Friday. Kansas City Federal Reserve President Thomas Hoenig is scheduled to deliver opening remarks in Washington at 8:30 AM ET.
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