The equity market was a volatile one today with the S&P
500 being up as much as 9 points (or 0.7%) in the morning and down as much as
16 (or -1.2%) in the afternoon. It
closed down 11 points, or -0.8%. From a
technical standpoint, it came very close to ending the day below the 23.6% Fibonacci
retracement level, 1340, that we have mentioned before. If it had closed below that, 1310 would've
been on the horizon. Losses were pared a
bit during the last 20 minutes, as some either began bargain hunting or short
covering going into tomorrow's release of the June FOMC minutes. We do not expect to see anything surprising
in that release. While most of the
economic data continues to disappoint, somewhat supported by AA's performance
(closed down 4.1%), we believe hope for a QE3 has kept the equity market above
its support levels.
Regarding this week's economic indicators, consumer credit
(released this morning) was once again significantly above expectations. We were not very surprised nor delighted as
we understand that in order for the US to maintain or even increase its consumption
habit, consumer credit has to grow, given lack of much growth in wages.
NFIB's (National Federation of Independent Business) small
business optimism index came in below expectations. There were signs of weaknesses across the
board in this report, from jobs, investment plans and earnings, to consumer
spending.
We think initial jobless claims will come in below the 375K
consensus on Thursday, which would be positive for the market. However, we might not see much of a reaction
as it won't take long for the market to digest the fact that the decline was
due to a holiday (4th of July) shortened week.
We believe there is a chance that some may not have submitted their
claims forms due to the short week.
The producer price index (PPI) will be released on
Friday. We estimate Y/Y and m/m declines
of 0.4% and 1.1%, respectively. This is
mainly driven by decline in oil prices along with not much growth in wages or
the economy as a whole. Although we have
not estimated core PPI, we do expect that figure to increase, unlike the
headline PPI figure. We do not expect
the economy to pick up, however we will see higher headline PPI during the next
few months as chances of a military conflict with Iran and/or instability
within the Strait of Hormuz may increase.
In addition, if the recent heat wave continues, farmers will be facing
additional costs which may show up in the PPI.
University of Michigan's first round of July consumer
confidence study also will be released this Friday. We do not have an estimate for it, but think
it will come in below the 73.5 consensus.
Positive impact of lower gasoline prices will be offset by lack of
enough job and wage growth.
Our estimate for next week's consumer price index (CPI) is a
12-month increase of 0.8% and a m/m decline of 0.8%. This is driven by the decline we have seen in
gasoline prices, along with not much improvement in unemployment and
wages. Unfortunately, it appears that
the last two have more of a negative impact on consumer demand, and offset the
positive impact that the first one has on disposable income. We note that we are not yet aware of what the
June CPI consensus is. We may provide
estimates for next week's release of June industrial production and capacity
utilization, either at the end of this week or early next week.
http://mogharabi.blogspot.com
No comments:
Post a Comment