Monday, September 10, 2012

Sector Performance Update & Comments on Upcoming Economic Data

For the week which ended on 9/7, monetary easing was certainly in-play, even though we believe it has been priced into the US equity market for a very long time. As shown in the table and chart at the end of this post, the equity market performed very well driven mainly by encouraging remarks made by the ECB and mixed economic data, which did not really lower the chances of central banks actually implementing those encouraging remarks and strategies.  How and when the monetary easing will be launched remains to be seen.
Some important economic indicators are due out this week.  In addition, the Fed's FOMC meeting will take place on 9/13.  We believe the Fed will not announce any additional specifics regarding a QE3.  As usual, it will say that all options remain on the table, hoping that such a positive comment will act as a psychological QE, driving asset prices even higher, and hopefully increasing businesses' confidence in hiring.  We note that expectations, as indicated by the upward movement in the stock market and articles written in the WSJ, are very high.  It won't be too difficult for Bernanke to disappoint.   
Consumer credit for the month of July will be released on Monday.  We will likely see a jump in that number compared to June, mainly due to the m/m 0.4% growth we saw in the July PCE, combined with slower growth of 0.2% in overall wages. 
Wholesale inventories for July will be out on 9/12.  We expect an increase from the prior month not necessarily due to rising demand, but mainly driven by seasonal factors along with hedging against rising prices.  
Initial jobless claims is due out on Thursday, 9/13.  The consensus stands at 369K.  We might get a figure slightly above the consensus as last week was shortened due to the Labor Day holiday, which we think forced some to delay their jobless claims filing the prior week, for which they had to make up last week.  We also won't be surprised by an upward revision of the prior week's number. 
As we began to point out about a month ago, actually a month too early, prices have been creeping up.  We will see evidence of that in the August PPI and CPI, which are due out on Thursday and Friday, respectively. 
August retail sales growth will also be released on Friday.  Given the better than expected auto sales numbers, overall retail sales growth will likely be close to the Street's estimate of 0.8% or slightly higher.  However, excluding auto sales, the retail sales growth rate will be only around 0.5%.
Industrial production and Capacity utilization for August will also be out on Friday.  We usually have our own estimates for these two indicators.  Regarding industrial production, we expect a decline of approx. 0.8% from July, or an index of 97.2.  The consensus is a decline of only 0.2%.  Our estimate for capacity utilization matches the Street's 79.2, which represents a 0.1% decline from July. 
University of Michigan's initial consumer sentiment survey for September is also due out on Friday.  The Street's estimate is 73.3, representing a one point decline from August.  Given our assumption of a jump in consumer credit in July (to be released on Monday) and August (will not be released until a month from now), driven by a not-so-robust job market and slow growing wages, we think it is likely that the consumer sentiment will disappoint.  In our opinion, the factors mentioned above will more than offset the recent spike in the equity markets.  In addition, while the upcoming election may influence consumers' responses, we think that given the close race between the candidates, the election-driven positives and negatives will likely offset each other during the next two months.
Lastly, we were of course very disappointed by the Wolverines' loss to Alabama last week.  However, the Wolverines survived a scare from the Air Force on Saturday and came away with a win at home.  Also, surprisingly, our beloved Jets scored many TDs in Sunday's convincing win over the Bills.  Of course, next week's matchup with the Steelers might be a different story.  And by the way, luckily with only 22 games remaining, the Yankees are up by one game over the surprising Orioles.
Below is the table and chart representing last week's sector performance update. 



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