Sunday, June 11, 2006

Market week preview

Last week Sunday I urged people to move money to cash and boy was that the right move! This week will be choppy again through Thursday morning as big inflation reports (PPI and CPI) come out Tues and Wednesday. Watch the market reaction to these reports. If the market seems stronger on these reports than expected it’s time to get in (details below). If the market seems weak by Wednesday morning (and the reports were not horrible) then more downtrend is expected and it may be prudent to guard yourself more. Next week is a little short on reports, though, with leading indicators on the 22nd and durable orders the 23rd being the only major reports, so getting out Wed may be too late to make much of a difference, but if the market is strong by Wednesday I will be getting back in.

Monday, June 12th

  • Treasury Budget for may releases at 2pm EST. The previous report put the deficit for April at $35.4B and the market expects that to widen to a $36.6B deficit for May. The professional forecast, however, is for a $39B deficit. If the deficit is worse than the market expects this is likely to raise the specter of inflation (since the government may have to raise rates to raise money over time) and the market has reacted very badly to inflationary news recently.

  • Earnings reports: LEH, STEI, MBT

Tuesday, June 13th

  • Business Inventories for April are released at 8:30am EST. Prior number was 0.7% and it will probably be about the same, although the market has built in expectations that inventories will shrink to perhaps 0.5%. Shrinking inventories could be very good news as it indicates strong economic activity and reduces inflation risks.

  • Core PPI and PPI for May are released at 8:30am EST. (Those are Core and normal Producer Price Inflation). These are big reports for determining the direction of the market for the week. If these inflation numbers are high the market will drop quite a bit if it is still like last week and we will be in for some heartache. If the numbers are bad but the market holds up, it suggests a solid footing has been reached. If the numbers are good (0.2% or less for Core, 0.5% or less for PPI) the market strength will directly indicate what we should expect for the week.

  • Retail sales and Retail sales excluding autos are released for May at 8:30am EST. For market strength we would like to see Retail above 0.1% (above 0.5% would be really nice) and for the ex-auto numbers 0.7% or better would be nice. Like the PPI numbers above, this will be a day to see how the market responds to good and bad news.

  • Earnings: WWE, GS, BBY

Wednesday, June 14th

  • Crude Oil inventories report at 10:30am. There may be market action, but I don’t expect any substantive changes, read here for why.

  • Core CPI and CPI for May are released at 8:30am EST. (Those are Core and normal Consumer Price Inflation). We should expect the same action on these as on the PPI numbers for the previous day. Good numbers would be below 0.2% for core and below 0.3% for CPI according to estimates. I privately think the CPI will be a little higher than estimates, so this could be a bloody day in the markets.

  • The Fed “Beige Book” report comes out at 2:00pm EST. This “book” comes out 8 times a years and summarizes economic conditions by district and sector.

  • Earning: MEAS

Thursday, June 15th

  • Initial jobless claims report at 830am EST. The prior report came in at 302,000 jobless claims, and this one is expected to be around 330,000. Too many jobless claims will be seen as a sign of economic weakness, too few will be seen an harbinger of inflation. I think given the current market conditions the response to this report will say more about how the market is taking news than about the report unless the numbers are a long way from estimates.

  • Capacity Utilization for May reports at 9:15am. Expected value is about 82%. High numbers will be read as inflationary, low values as a slowdown. This number is another one that is more about market sentiment than anything else.

  • Industrial Production growth for May reports at 9:15am. Expected value is about 0.2% growth. High numbers will be read as inflationary, low values as a slowdown. Again, I foresee this number simply amplifying the market trend.

  • Net Foreign Purchases (of bonds) report for April will be out at 9am EST. Previous number was $69.8B. This number may influence the bond market. A high number would lower long term rates, although I wouldn’t be surprised to see a slowdown in foreign purchasing. This number can be strongly affected by single transactions, though, so it’s hard to predict.

  • Earnings: OVTI, ADBE

Friday, June 16th

  • Current Account Balance (trade deficit and surplus) report for Q1 is out at 830am EST. Predicted not to change much from prior, and it would take a dramatic shift for this to move the market.

  • Preliminary Michigan Sentiment index is reported at 9:50am EST. This number was 79.1 previously and those with estimates see it in the 79-80 range. Unless it changes a lot I don’t see this number swaying the market.

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