MONDAY SCOUTING REPORT
Last week saw a crazy full schedule of economic data accompanied by market volatility. This week has much quieter calendar.
“The first important data release does not arrive until Thursday, when we get May retail sales,” said Deutsche Bank’s Joe LaVorgna.
Talks of a “taper” have also been put off giving investors and traders a few days to gather their thoughts and reposition their portfolios before the news flow picks up again.
- Talks Of A “Taper” Are On Hold: The big buzzword in the markets and the economy lately has been “taper.” This is the prospect that the Federal Reserve could soon start reducing, or “tapering,” its bond-buying program, which would potentially cause interest rates to rise and pressure the economy. However, Friday’s good May jobs report was just bad enough to put any speculation of a near-term taper on hold.
- Retail Sales (Thursday): Economists estimate that retail sales climbed by 0.5% month-over-month in May. Excluding autos and gas, they estimate sales climbed by 0.3%. “Like nonfarm payrolls, retail sales are prone to substantial revision, so the May results will have to be taken into the context of what changes might occur to March and April,” said Deutsche Bank’s Joe LaVorgna.
- Jobless Claims (Thursday): Economists estimate that weekly initial unemployment claims climbed to 350,000 from 346,000 last week. “At 353,000, the four-week average is up from a low of 338,000 five weeks ago, although that level included two sub-330,000 readings that were probably exaggerated on the low side,” said High Frequency Economics’ Jim O’Sullivan.
- Producer Price Index (Friday): Economists estimate producer prices climbed by 0.2% month-over-month in May and 0.1% excluding food and energy. “In PPI, we expect a flat (0.0%) reading in the headline and 0.1% growth in core finished goods,” forecasts Morgan Stanley’s Vincent Reinhart. “This comes after wholesale gasoline prices flattened out between mid-April and mid-May, but this should appear negative in seasonally adjusted terms.”
- Industrial Production (Friday): Economists estimate that industrial production increased by 0.2% month-over-month in May. “Overall production will likely get a small boost from utilities output as the weather normalized last month,” said Wells Fargo’s John Silvia. “However, manufacturing output will likely remain weak as soft global growth and a strengthening dollar weigh on foreign demand for U.S. produced products.”
- Consumer Sentiment (Friday): From LaVorgna: “The preliminary reading on June consumer sentiment (87.0 vs. 84.5) should benefit from several developments: The first is rising home prices—they were up 12.1% in April from their year earlier level according to CoreLogic. Another development is rising stock prices—they were up over 14% year-to-date through May. Lastly, the job market continues to mend.”
Big swings have returned to the stock market as economic data continues to be weak or disappointing.
“[W]e continue to believe that most institutional investors are not prepared for a potential period of market weakness,” said BMO Capital’s Brian Belski who sees the S&P 500 falling to 1,575 by the end of the year..
“[T]he market is likely stuck in a frustrated and choppy trading range for at least several more months, unless the economic environment (and job growth in particular) begins to pick up more steam and quick.”
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