Last week was pretty light on economic data.
Still, the stock market quietly climbed to new record highs.
This week is loaded with reports on manufacturing, housing, and inflation.
Importantly, we’ll get the minutes of the October Federal Open Market Committee (FOMC) meeting, the meeting that marked the end of quantitative easing.
Many Fed-watchers thought the Fed sounded a bit hawkish, especially with regards to its language on the improving US labour market.
Maybe we’ll get some clarity this week.
Here’s your Monday Scouting Report:
What To Expect From The FOMC Minutes: Credit Suisse has an excellent brief preview of what to expect: “The latest FOMC statement took some market participants by surprise with its incrementally hawkish tone, especially as its release followed a period of intense, if short-lived, financial market turmoil. But the minutes of the October 28-29 FOMC meeting have the potential to surprise in the other direction if more than a “couple” policymakers remarked on the risks posed by weakness abroad and a stronger US dollar. Text around such concerns will be the subject of the market’s attention when the minutes are released on Wednesday…”
“…The markets likely will be more interested in the discussion concerning the FOMC’s decision to drop its reference to the “significant” underutilization of labour resources, which had been introduced just three months earlier. Additionally, the minutes may shed light on the Committee’s surprisingly balanced characterization of inflation, which could have been considerably more dovish, given the notable decline in key measures of inflation expectations in advance of the October meeting.”
- Empire Manufacturing (Mon): Economists estimate this regional activity index jumped to 12.0 in November from 6.17 in October. “The Empire State manufacturing survey, unlike other manufacturing surveys, fell well short of expectations in October,” Nomura economists noted. “The latest Beige Book corroborated to some extent the weakness in the region, as it stated that the New York district “noted that manufacturing growth had stalled.” We expect some improvement from this lull, in November.”
- Industrial Production (Mon): Economists estimate production climbed by just 0.2% in October while the capacity utilization rate was unchanged at 79.3%. “Weaker global growth, a stronger dollar and falling oil prices act as headwinds to industrial production, but gains likely persisted into October,” Wells Fargo’s John Silvia said. “We already know that manufacturers expanded payrolls in the month and average weekly hours ticked up. In addition, the ISM Manufacturing Index came in considerably stronger for October, with the production component advancing even further into expansion territory.”
- Producer Price Index (Tues): Economists estimate PPI fell 0.1% in October, but climbed 0.1% excluding food and energy. On a year-over-year basis, prices are forecast to climb 1.2% and 1.5%, respectively. From Morgan Stanley’s Ted Wieseman: “Wholesale gasoline prices were down 11% in October, which should result in a 7% drop after seasonal adjustment. Along with sharp declines in heating oil and diesel and smaller weakness in natural gas and electric utility costs, we look for PPI energy to be down 3.1%, the largest drop since March 2013. Energy’s weight is a lot smaller, however, in the new PPI. A 3% decline in energy prices in the services-dominated final demand PPI would knock 0.2pp from the headline; a year ago, such a drop would have knocked 0.7pp from the narrower finished goods PPI. For the core, meanwhile, weakness in miscellaneous services prices drove a 0.1% decline in September, and we look for some reversal of that softness in October. Less auto discounting should also support firmer core goods prices.”
- NAHB Housing Market Index (Tues): Economists estimate this homebuilder sentiment index climbed to 55 in November from 54 in October. “This suggests builders generally remain optimistic, consistent with the improvement we have seen in overall consumer confidence,” Bank of America Merrill Lynch economists said. “There has been a disconnect between homebuilder sentiment and housing starts, which we think will be resolved over time.”
- Housing Starts (Wed): Economists estimate starts climbed 0.8% in October to a pace of 1.025 million units. Permits are estimated to have climbed by 0.6% to 1.038 million. “We expect a decent increase in multi-family building as suggested by the gain in building permits,” Bank of America Merrill Lynch economists said. ” We look for little change in single family, however. Homebuilder sentiment generally remains positive, as suggested by the NAHB survey. Moreover, weather conditions were generally favourable in October, which should support homebuilding.”
- FOMC Minutes (Wed): At 2:00 p.m. ET, the Federal Reserve will publish the minutes of its Oct. 28-29 Federal Open Market Committee meeting.
- Consumer Price Index (Thurs): Economists estimate CPI fell 0.1% in October, but climbed 0.1% excluding food and energy. On a year-over-year basis, prices are forecast to climb 1.6% and 1.7%, respectively. From Morgan Stanley’s Ted Wieseman: “The Energy Department’s survey showed the average retail gasoline price plummeting from $US3.41 a gallon in September to $US3.17 in October (and to below $US3 now in early November), a 7% decline that should be converted into a 4% drop in seasonally adjusted terms. California’s payout of electric utility rebates in April and October should also lead to a sharp drop in utility costs. So we look for overall energy prices to be down 3.0%, knocking 0.3pp from headline CPI. We look for the core to rise 0.16%, raising the year/year rate a tenth to 1.8%. Industry reports showed less auto discounting in October, though used car prices have been weak, and our AlphaWise team also saw less apparel discounting. Tight rental vacancy rates should keep the heavily weighted rent and OER categories rising. We’re assuming a flattening out in airfares after a record decline in the prior three months that was not consistent with industry reports.’
- Initial Jobless Claims (Thurs): Economists estimate the pace of weekly claims climbed to 284,000 from 290,000 a week ago.
- Philadelphia Fed Business Outlook (Thurs): Economists estimate this regional activity index fell to 18.5 in November from 20.7 in October. “The shipments and employment components softened last month while new orders remained strong; in our view, these trends are consistent with continued manufacturing expansion in Q4, though at a more moderate pace than in recent quarters,” Barclays economists said.
- Existing Home Sales (Thurs): Economists estimate the pace of existing home sales fell 0.6% in October to an annualized pace of 5.15 million units. “The trend in pending home sales and mortgage purchase applications has weakened, suggesting a slight decline in home sales is likely,” Bank of America Merrill Lynch economists said. “Inventory of homes for sale should continue to fall, partly due to the typical seasonal slowdown in housing supply (inventory data are released NSA).”
Once again, the S&P 500 closed the week at an all-time high. Of the Wall Street strategists followed by Business Insider, only one predicted that we could see the S&P at the 2,039 level we’re seeing today. That person: ex-JP Morgan strategist Tom Lee.
On September 15 in his inaugural report for his new firm Fundstrat Global Advisors, Lee predicted the S&P would hit 2,100 by year end.
“We’re in a seasonally strong period, so I think the markets will close above our targets,” Lee said to CNBC on Wednesday. “I would say if you feel uncomfortable being long, it’s a good sign because that’s how bull markets should feel.”
For more insight about the middle market, visit mid-marketpulse.com.
Business Insider Emails & Alerts
Site highlights each day to your inbox.