Tuesday, June 16, 2009

Economic Indicators for June 16, 2009

Building permits and Housing starts (for May09) - figures too high could create short-to-medium term doubts about the housing and equity markets, as they may represent additional push on inventories in the future.
Consensus estimates-Housing starts: 485KHousing permits: 500K

Fear of inventory build-up could worsen if permits data is significantly higher than the consensus and housing starts match or exceed the consensus (we note that the avg 30-yr mortgage loan rate has climbed nearly 100 bps since end of April). Mkt may react negatively based on such fear.

PPI (for May09) - watched even more closely now, especially given the govt's continuous printing of money, and the latest rise in commodity prices. Of course the core measure can take care of that. Over time, we believe inflation could raise its head. Again, given the fact that the Fed has pumped so much additional cash into the market. Higher inflation and lower dollar (too low to act as a buffer against the risk of the equity mkt) remain a possiblity.
Consensus estimates-PPI: 0.6%Core PPI: 0.1%

In our opinion, if not now, then later, the dollar will no longer be considered as the safe haven, with the government levered up to its eye balls, and its continuous need to print money which means more debt. There is always the risk of the US' largest debt holder, China, sticking with only short-term bills. In fact, such trend or worse may be taking place. China sold $4.4 billion, or approx 0.6%, of its treasuries in April, in addition to Russia's sale of approx. $1.4 billion (1% of its holdings) and Japan's sale of $800 million (0.1% of its holdings).

Industrial production (for May09) - we believe the figure may come in below the consensus (provided below).

In fact, we believe it will also be negative for the mkt to see a higher than expected figure. This is mainly due to the fear that inventory build-up may raise its ugly head again as we remain skeptical in seeing a recovery in consumer expenditure in 2H09, in addition to continuing decline in exports. We are also doubtful in seeing the majority of businesses expand and increase capex significantly. An increase in industrial production certainly does not mix well with continuing decline in consumption, which will likely not recover until more than a year from now. For the same reasons, which will make the probablity of increased prodction and capex minimal in the near future, we expect a slightly disappointing capacity utilization figure.
Consensus estimates-Production: -1.0%

Capacity utilization: 68.1%

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