By Theresa Sheehan
PRINCETON (SMRA) – The week ahead will have little economic data to
keep markets’ attention with the November employment report out of the
way, and the data on retail sales and inflation another week away.
However, monetary policy announcements from major central banks
could prove timely as the euro zone struggles to meet the challenges of
the sovereign debt crisis, and the global financial sector tries to
limit the potential contagion.
Economic Data
There will be few standouts among the scheduled releases of
economic data.
The first of the monthly reads on December consumer confidence will
be the IBD/TIPP Economic Optimism Index at 10:00 ET on Tuesday, and the
preliminary Reuters/University of Michigan Consumer Sentiment Index at
9:55 ET on Friday.
The November data suggested that confidence was starting to recover
after recent lows in the summer months, and December should build on
this improving trend. Gasoline prices have declined further, and the
labor market is showing some slow and very modest improvement. However,
financial markets remain volatile and the economic future less
uncertain.
The ISM Non-Manufacturing Index for November at 10:00 ET on Monday
could be consistent with sustained expansion near the current pace. Some
of the regional data on service sector activity have turned higher for
the month as conditions associated with unsettling events in the summer
months continue to fade.
The international trade deficit for October at 8:30 ET on Friday
will provide the first information to fill out the net exports component
of fourth quarter GDP. A narrowing in the trade deficit helped support
growth in the third quarter, and should also play a part in the fourth
quarter. There may be a little late imports of goods for holiday
inventories, but exports of hard goods like aircraft and motor vehicles
will probably be respectable.
The data on new orders for factory goods in October at 10:00 ET on
Monday will look soft. Durable goods orders were already reported down
0.7% for the month, and declines in petroleum should restrain the
numbers for nondurable orders. However, since a strong report is
anticipated for November due to some hefty orders for civilian aircraft,
a weak report will generate less concern about conditions in the factory
sector.
The report on factory orders will include the change in factory
inventories in October. Combined with the numbers for inventories at
wholesalers in October at 10:00 ET on Thursday, this will help set
expectations for the change in inventories in fourth quarter GDP. Soft
inventory growth in the third quarter, and above-expectation consumer
spending has set the stage for stronger inventory growth in the fourth
quarter.
Consumer credit outstanding in October at 15:00 ET on Wednesday
will probably show that consumers are using more credit lately, and
financing larger purchases like motor vehicles.
The Flow of Funds for the third quarter will be released at noon on
Thursday. Consumer repair of personal balance sheets, the slip in the
value of homes and stock market volatility will all have an impact on
the data.
Initial jobless claims for the week ended December 3 should
maintain the current trend, keeping levels for new filings near the
400,000 mark where they have been since late September. Layoff activity
remains fairly quiet, but the labor market is too sluggish to do more
than keep claims levels near the current steady trend.
Central Bank Activity
This is a busy week for scheduled monetary policy announcements
from central banks.
In the overnight hours of Monday-Tuesday, the Reserve Bank of
Australia will issue its routine monetary policy announcement. In its
November 1 announcement, the Bank lowered its cash rate by 25 basis
points to 4.50% and said, “Over the past year, the Board has maintained
a mildly restrictive stance of monetary policy, in view of its concerns
about inflation. With overall growth moderate, inflation now likely to
be close to target and confidence subdued outside the resources sector,
the Board concluded that a more neutral stance of monetary policy would
now be consistent with achieving sustainable growth and 23 per cent
inflation over time.” We anticipate no additional cut at this time.
The Bank of Canada makes its announcement at 9:00 ET on Tuesday,
and is not expected to make any policy change at this time. The
overnight rate is 1%, and the Bank views this as very accommodative.
While the Bank may have some inclination tighten, conditions in the
global economy and financial markets have kept policy on hold.
The Bank of England’s Monetary Policy Committee will meet on
Wednesday and Thursday, and it is possible the Committee will further
expand the Asset Purchase Program, although probably on a much smaller
scale that the GBP 75 billion which was added to the existing GBP 200
billion at the October 6 meeting.
The ECB will meet on Thursday, and it’s possible there will be
further easing in the refi rate from the current 1.25%, which is after a
25 basis point reduction on November 3. The Bank might also offer more
covered bond purchases.
The Reserve Bank of New Zealand has a slight bias towards
tightening in the future, but for now will probably leave the official
cash rate at 2.5%.
The FOMC will meet on Tuesday, December 13. No change in the
current policy for the fed funds rate target range of 0%-0.25% through
mid-2013 is expected, nor is it expected that the Fed with expand its
balance sheet through more asset purchases.
US Treasury Auctions
On Thursday, the U.S. Treasury will announce a new 3-year nominal
note, reopenings of the 10-year notes and 30-year bonds of the quarterly
refunding, and a reopening of the 5-year TIPS notes. All will auction in
the following week on Monday through Thursday, respectively.
** Stone & McCarthy Research Associates **
[TOPICS: M$$FI$,M$U$$$,MAUDS$]
