Sunday, July 09, 2006

Weekly Preview

Last week some interesting action which verified our opinion here at The Finance Wonk that the market doesn’t know what it wants anymore. Early in the week the market dipped on news from a payroll processing company that they expected the Friday jobs report to be strong – indicating that the market was negative on growth because of the impact on inflation and interest rates. Then Friday the market dropped over a percent when the actual jobs report was low, indicating that the market would also have liked growth. The fact is that we are looking into a future of inflation strong enough to force the Federal Reserve to act, but only some portions of the economy are seeing the pricing strength that will allow them to ride out higher interest rates. It’s a textbook illustration of how interest rates lead to recessions, although we still probably have a few reasonable quarters ahead of us. I am working on a big writeup on inflation to explain how to think about this right, but I'm still crunching numbers so it won't be up until later.

Monday, July 10th

  • Wholesale Inventories report for May comes out at 10am EST. This number was up a whopping 0.9% for April, but I expect it will be 0.6% or less this time. A large positive number here would indicate the sales channel backing up and hit stocks pretty hard.
  • Consumer Credit report for May comes out at 3pm EST. This is an interesting number because it is perhaps the best form of survey on what people expect from inflation. The more people believe inflation is coming, the more willing they are to borrow money in present dollars since they will be paying it back with “cheaper dollars” (usually realized through pay increases). People don’t realize this is what they were doing, but it’s an excellent macro-economic summary of what changes in consumer credit indicate. Having said that, we have to be on the lookout for changes due to automotive purchases, which are changing a lot due to sales incentives. For the six months before April the monthly average was a $1.3bn per month increase. In April, the consumer credit number jumped by $10.6 billion!!! My guess would be $3-6 billion report this week, with the higher end of that (anything above $5bn) indicating strong inflationary expectations from consumers.
  • Earnings reports: CHTT, SCHN, SGR, EMMS, SMSC, HELE, EGLS, WDFC, AA
Tuesday, July 11th

  • Earnings reports: PBG, RI, AMB, DNA, INFY
Wednesday, July 12th

  • Weekly Crude inventories reports at 10:30am EST. If you read these columns weekly you’ll see I’ve been having a lot of fun with this one. I predicted a while ago that we don’t have a real oil shock on our hands here and that we would see a lot of noise but a rather insignificant average. Sure enough, the last three weeks have seen huge alternating gains and losses which have caused plenty of headlines but left the actual reserves little changed. I’m developing a theory that a lot of action might be coming from the oil companies trading desks because they have figured out they can make a lot of money by making their production releases lumpy and trading on that. It would be similar behavior to the natural gas market manipulation that BP is currently being investigated for.
  • Earnings reports: TKLC
Thursday, July 13th

  • Initial jobless claims reports ay 8:30am EST. Prior number was 313,000 and many people are expecting a huge change due to last Friday’s surprise jobs downfall, but I’m going to go ahead and tell you the future and say it won’t change much. If it changes more than 100,000 I’ll post an “I blew it” headline. So far I’ve never had to do that yet on one of my predictions!
  • Treasury Budget for June reports at 2pm EST. Tax receipts should be strong, although the decreasing market will leave it lower than last months $23bn. I’d guess this number would come in at $19-21bn, but it isn’t really something I watch.
  • Earnings reports: METH, ESIO, CAMP
Friday, July 14th

  • National economic indicators out today include: Retail sales growth for June (should be up 0.4%, better than last months 0.1%), Retail sales growth excluding autos (0.5% last month, probably close to that this month), Business Inventories (which we shall hope will be very similar to the Monday wholesale inventories number and therefore somewhere around 0.4-0.6%), and the Michigan sentiment index (85 last month, no big exchange expected).
  • International economic indicators out today include the Aggregate Export Prices index and the Import Prices Index (which excludes oil). I expect both of them to be up about 0.6%, which is a fairly good mid-cycle indicator of what the real inflation rate is. This is higher than the CPI, but the CPI has been modified by politicians about 20 times since it was unveiled and each change has made things look rosier so we had better be skeptical.

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