The Stock Market Pulse

($49.95/month value)

Week of February 23rd, 2009

 

Weekly review of the markets

 

Last week, it seemed that technically we were facing the abyss and the long weekend gave everybody a chance to take deep breath and assess the situation objectively, or so we were hoping...

Monday, the markets were closed

Tuesday, the results were in: Investors just weren't satisfied with the rescue plan, judging it to be too broad and unclear to be of any good to the markets in the short term. Apart from gold which is playing its defensive role and super markets like WalMart who beat expectations, every other markets closed down on the day.

Wednesday, the the government announced it would inject even more cash to Freddie Mac and Fannie May to stabilize mortgage liquidities. Housing starts and Industrial Production came out lower then expectations (!). GM and Ford presented their restructuration plans and asked for $21B... Fed's minutes were gloomy with Mr Bernanke stating that the recession would be longer and the worst since the 1930's great depression! he also mentioned that the effect of the interest rate reductions were void by the credit spreads thus credit access is still dysfunctional. Surprisingly, the day wasn't a disaster with a slight reduction; probably because the worst occurred the day before...

Thursday markets opened higher probably caused by shorts covering. That's usually what happens after sharp plunges since such moves are usually followed by bounces... Job claims came out even higher then anticipated at 628000 bringing the total up to close to 5 millions. PPI (Producer Price Index) came out stronger which is good because in times like these, deflation is public enemy number ONE... Them ain problem today was employment. It is expected that even more jobs would be lost and the car manufacturers troubles are far from over. After a great start, the markets took a dive. The Dow even briefly breached the November low. Such a breach could have devastating effects...

Friday the CPI ( Consumer price Index) was on target with expectations ( yes they got one right!) but the markets continued their slide which started late yesterday. Senator Christophe Dodd is partly to blame for it after he mentioned that government might have to nationalize some banks to stabilize the credit market. Obama himself intervene and said his administration believe in a private banking system. This helped the market turn the other way and we managed to finish slightly higher vs the open but still lower than yesterday's close. Serious psychological damage occurred though with a close below 7500 for the DOW...

This Week

This week will be very important considering last weeks debacle. The November lows were thought to be the absolute bottom of the crisis but now all bets are off! It's almost inevitable that we will now reach new lows and we have to go back 12 years to find another decent support level! Are we going to fall prey to panic or are we going to come to our senses? The markets are obviously over reacting since after the rescue plans were announced we actually went lower. it doesn't make any sense. Which ever way you look at it, the markets have access to more options to pull itself out of this crisis. Plans might not be as good as some had hoped but we're not worst off...

 

In my opinion we are very close to an huge bounce so if you are playing the "short" game, I wouldn't stay short overnight...

 

Next week some important economic data is underway so check it out further down in this report.

Technically, the DOW caused serious doubts in the minds of the most positive investors and confirmed the opinion of the most pessimists. The triangle briech could theoritically bring it down to the 6000 levels!

 

 

The S&P, which doesnt; reflect the markets as well is still inside its triangle and could bounce up ealry in the week. Some might be tempted to take some profits...

 

 

 

*if you want more information on technical indicators and Technical analysis in general I strongly recommend you click here

 

Economic Calendar Data Source: Bloomberghttp://www.bloomberg.com/markets/ecalendar/index.html

(Reports I consider will impact the market the most with definitions and expectations)

 (Soon to be a section for Investor Rules members only ) Not a member yet? Just go to

 

http://www.InvestorRules.com/membership.html

 

 

Monday February 23rd

 

No important news

Tuesday February 24th  

ICSC-Goldman Store Sales
7:45ET

Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.

Why Do Investors Care?
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.

Redbook
10:00 ET

Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Why Do Investors Care?
Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.

 

S&P Case-Shiller HPI

Definition

The S&P/Case-Shiller® home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. The composite indexes and the regional indexes are seen by the markets as measuring changes in existing home prices and are based on single-family home resales. The key composite series are for the longer-running, original 10-city composite series and the newer and expanded 20-city composite. A national index is published quarterly. The indexes are based on single-family dwellings with two or more sales transactions. Condominiums and co-ops are excluded as is new construction. The data are compiled for S&P by Fiserv, Inc. The S&P/Case-Shiller Home Price Indices are published monthly on the last Tuesday of each month at 9:00 AM ET. The latest data are reported with a two-month lag. For example data released in January 2008 were for November 2007.  
Why Investor's Care

Home values affect much in the economy — especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers’ ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

With the onset of the credit crunch in mid-2007, weakness in home prices has had the reverse impact on the economy. New housing construction has been impaired and consumers have not been able to draw on home equity lines of credit as in recent years. But an additional problem for consumers is that a decline in home values reduces the ability of a home owner to refinance. During 2007 and into 2008 this became a major problem for subprime mortgage borrowers as adjustable rate mortgages reached the end of the low, “teaser rate” phase and ratcheted upward. Many subprime borrowers had bet on higher home values to lead to refinancing into an affordable fixed rate mortgage but with home equity values down, some lenders balked at refinancing subprime borrowers.

Many economists believe that the U.S. economy and especially the depressed housing sector will not fully stabilize until home prices firm back up. This makes watching home prices all the more important for the investor.

 

Consumer Confidence
10:00 AM
Consensus is 35.5

 

Definition
The Conference Board compiles a survey of consumer attitudes on present economic conditions and expectations of future conditions. Five thousand consumers across the country are surveyed each month. While the level of consumer confidence is associated with consumer spending, the two do not move in tandem each and every month.

Why Do Investors Care?
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. Consumers became more pessimistic in 2005 when gasoline prices surged.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.

Market Consensus Before Announcement
The Conference Board's consumer confidence index sank further to 37.7 in January from 38.6 in December. The January level set a record low in more than 40 years of data. Weakness was centered in the present situation but expectations were also weak. Looking ahead, confidence is not likely to bump up much anytime soon. Jobless claims continue upward, job openings have been declining, the news from the stock market has been depressing, and even gasoline prices have edged back up. And, so far, neither Congress nor the Administration have inspired confidence in a recovery coming soon.

Consumer confidence Consensus Forecast for February 09: 35.5
Range: 31.0 to 42.0

Typically retail sales will move in tandem with consumer optimism - although not necessarily each and every month.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/27 2/24 3/31 4/28 5/26 6/30 7/28 8/25 9/29 10/27 11/24 12/29 Released For: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

 

Wednesday February 25th    

 

 

MBA Purchase Applications
07:00ET

Definition

The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Why Do Investors Care?

This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

 

Existing Home Sales
8:30 ET
Consensus 4.80M
 
Definition
Existing home sales tally the number of previously constructed homes, condominium and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends. (National Association of Realtors)

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Market Consensus Before Announcement
Existing home sales unexpectedly jumped 6.5 percent in December to a 4.740 million unit annual rate. But it is hard to say that the gain was real. Certainly, there is the argument that lower mortgage rates and lower house prices are now boosting home sales. But an alternative view is that large seasonal factors during winter months artificially boosted very modest actual gains in sales. Housing related statistics are notoriously unreliable during winter months. Based on this latter view, look for sales to head back down in January. The Administration's tax incentives for boosting home sales are likely to help but that is a few months down the road as homebuyers are just now starting to mull their impact on the decision to buy while still worrying about tighter credit and possible job loss.

Existing home sales Consensus Forecast for January 09: 4.80 million-unit rate
Range: 4.55 to 4.91 million-unit rate

Existing home sales reached a peak in mid-2005 and have been easing since. Typically, a distinct reverse relationship exists between home sales and mortgage rates. However, sales and mortgage rates both have firmed in recent months.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/26 2/25 3/23 4/23 5/27 6/23 7/23 8/21 9/24 10/23 11/23 12/22 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

EIA Petroleum Status Report (Pay attention to this one)
10:30 ET

Definition
The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products.

Why Do Investors Care?
Petroleum product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices - or price increases for a wide variety of petroleum products such as gasoline or heating oil. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for crude oil may not be as strong. If inventories are rising, this may push down oil prices.

Crude oil is an important commodity in the global market. Prices fluctuate depending on supply and demand conditions in the world. Since oil is such an important part of the economy, it can also help determine the direction of inflation. In the U.S. consumer prices have moderated whenever oil prices have fallen, but have accelerated when oil prices have risen.

 

Thursday February 26th 

Durable Goods Orders
10:00 ET
Consensus -2.5%

Definition
Durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. The first release, the advance, provides an early estimate of durable goods orders. About two weeks later, more complete and revised data are available in the factory orders report. The data for the previous month are usually revised a second time upon the release of the new month's data. (Bureau of the Census, U.S. Department of Commerce)

Why Do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Rising equity prices thrive on growing corporate profits - which in turn stem from healthy economic growth. Healthy economic growth is not necessarily a negative for the bond market, but bond investors are highly sensitive to inflationary pressures. When the economy is growing too quickly and can't meet demand, it can pave the road for inflation. By tracking economic data such durable goods orders, investors will know what the economic backdrop is for these markets and their portfolios.

Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provide insight to demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduces the prospects for inflation.

Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and therefore a major influence on their investments.

Market Consensus Before Announcement
Durable goods orders in December pointed to a worsening manufacturing sector, dropping another 3.0 percent (revised), following a 4.0 percent decrease in November. Excluding the transportation component, new orders decreased 3.9 percent (revised), after falling 2.0 percent the prior month. Looking ahead, demand just is not there to boost orders. Retail spending is down, including for autos. Housing is keeping household durables spending and orders down. And even exports have turned down.

New orders for durable goods Consensus Forecast for January 09: -2.5 percent
Range: -7.8 percent to -0.8 percent

New orders for durable goods, ex-trans., Consensus Forecast for January 09: -2.1 percent
Range: -4.7 percent to 0.0 percent

Monthly fluctuations in durable goods orders are frequent and large and skew the underlying trend in the data. In fact, even the yearly change must be viewed carefully because of the volatility in this series.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/29 2/26 3/25 4/24 5/28 6/24 7/29 8/26 9/25 10/28 11/25 12/24 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

 

Jobless Claims
08:30ET ET
Consensus 625K
Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Why Do Investors Care?
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.
By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.
Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.
Market Consensus Before Announcement
Initial jobless claims continue to show a very depressed labor market. Initial claims were unchanged for the February 14 week at 627,000 but this level was 42,000 higher than a month earlier. Continuing claims are likewise pointing to trouble for February. They continue to push out to new records and indicate that jobseekers are now out of work for a longer period of time. Continuing claims, the latest data for the February 7 week, rose 170,000 to 4.987 million. Based on the negative news coming from the corporate sector, more layoffs are ahead.

Jobless Claims Consensus Forecast for 2/21/09: 625,000
Range: 599,000 to 671,000

 

Weekly series fluctuate more dramatically than monthly series even when the series are adjusted for seasonal variation. The 4-week moving average gives a better perspective on the underlying trend.

Data Source: Haver Analytics  

New Home Sales
08:30ET
Consensus 330K

Definition
New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Market Consensus Before Announcement
New home sales continued to spiral downward in December, plunging 14.7 percent in December to a record low 331,000 annual unit rate from a 388,000 annualized pace in November. Supply on the market stood at a record high of 12.9 months vs. 12.5 months in November. And supply continued to weigh on prices as the median price for a new home plunged 6.0 percent from November to $206,500 and was down 9.3 percent from a year ago. While we may get a boost in coming months from newly enacted tax incentives, what is weighing on potential homebuyers now are tighter credit standards and rising unemployment.

New home sales Consensus Forecast for January 09: 330 thousand-unit annual rate
Range: 300 thousand to 350 thousand-unit annual rate

 

There is no question that lower interest rates boost home sales. Other factors also impact housing decisions, such as employment and income growth, and wealth stemming from stock market gains.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/29 2/26 3/25 4/24 5/28 6/24 7/27 8/26 9/25 10/28 11/25 12/23 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

EIA Natural Gas Report (Pay attention to this one)

10:30 ET

Definition
The Energy Information Administration (EIA) provides weekly information on natural gas stocks in underground storage for the U.S., and three regions of the country. The level of inventories help determine prices for natural gas products.

 

Why Do Investors Care?
Natural gas product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in natural gas. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for natural gas may not be as strong. If inventories are rising, this may push down oil prices.

 

Friday February 27th  

Gross Domestic Product (preliminary)
08:30 ET 
Real GDP-Q/Q change- SAAR -5.4%
GDP price index -Q/Q change- SAAR -0.1%

 

Definition

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Why Do Investors Care?

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Market Consensus Before Announcement
The initial estimate for fourth quarter GDP showed the recession is worsening with a sizeable 3.8 percent decline, following a 0.5 percent contraction the prior quarter. The economic decline was spread throughout the economy. The all important consumer spending component dropped 3.5 percent annualized. We also saw sharp declines in residential investment and business investment in equipment & software. Nonresidential structures investment dipped slightly and even exports declined. We likely will see a downward revision to the fourth quarter. But pay specific attention to final sales-which indicate how strong demand is. Markets did not pay much attention to it, but final sales fell an annualized 5.1 percent in the fourth quarter. How this figure winds up will play a key role in how first quarter growth ends up.

Real GDP Consensus Forecast for preliminary Q4 08: -5.4 percent annual rate
Range: -6.1 to -3.8 percent annual rate

GDP price index Consensus Forecast for preliminary Q4 08: -0.1 percent annual rate
Range: -0.4 to 0.0 percent annual rate  

Real GDP growth is always quoted at a quarterly annual rate. It measures how much the economy has grown over a three-month period. Quarterly growth rates are often volatile; consequently, economists also like to look at the year-over-year growth in GDP. The yearly changes tend to be more stable.

Data Source: Haver Analytics  

It is common to compare quarterly changes at annual rates in the GDP deflator. These can be volatile, just like the quarterly swings in real GDP growth; as a result, the trend in inflation is better determined by year- over- year changes.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/30 2/27 3/26 4/29 5/29 6/25 7/31 8/27 9/30 10/29 11/24 12/22 Released For: Q4:08 Q4:08 Q4:08 Q1:09 Q1:09 Q1:09 Q2:09 Q2:09 Q2:09 Q3:09 Q3:09 Q3:09   A: Advance P: Preliminary F: Final

 

NAPM-Chicago
08:30ET
Consensus 33.0

Definition
The National Association of Purchasing Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. Manufacturing and non-manufacturing firms are both surveyed, but until recently, market players have believed that the survey primarily covers the manufacturing sector. Readings above 50 percent indicate an expanding business sector. The NAPM - Chicago is considered a leading indicator of the ISM manufacturing index.

Why Do Investors Care?
Investors should track economic data like the NAPM - Chicago to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that won't generate inflationary pressures.
The NAPM - Chicago gives a detailed look at the Chicago region's manufacturing and non-manufacturing sectors. Many market players don't realize that non-manufacturing activity is covered in this index and tend to focus on the manufacturing side only.

Consequently, market players consider this as a leading indicator for the ISM manufacturing survey. On its own, it can be viewed as a regional indicator of general business activity. Some of the NAPM - Chicago's sub-indexes also provide insight on commodity prices and other clues on inflation. The Federal Reserve closely watches this report because in its long history, it has proven to be a good indicator of business activity as well as inflation. As a result, the financial markets can be highly sensitive to this report.

Market Consensus Before Announcement
The NAPM-Chicago purchasing managers' index fell nearly 2 points in January to 33.3. The production index was especially weak while the employment index showed the largest drop of any index. Looking ahead, the new orders index was not encouraging with a dip to 30.7 from 31.5 in December. The January reading was deep in negative territory - far below the breakeven point of 50.

NAPM-Chicago Consensus Forecast for February 09: 33.0
Range: 28.8 to 36.0
 

The NAPM-Chicago Survey registers manufacturing and non-manufacturing activity in the Chicago region. Investors care about this indicator because the Chicago region mirrors the nation in its distribution of manufacturing activity. Consequently, the NAPM-Chicago survey often moves together with the ISM index, but is reported one day in advance.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/30 2/27 3/31 4/30 5/29 6/30 7/31 8/31 9/30 10/30 11/30 Released For: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Consumer Sentiment
10:00 ET
Consensus 56.0

Definition
The University of Michigan consumer surveyquestions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey.

Why Do Investors Care?
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. Consumers became more pessimistic in 2005 when gasoline prices surged.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.

Market Consensus Before Announcement
The Reuter's/University of Michigan's Consumer sentiment index continued to show the consumer sector in a glum mood. The Reuters/University of Michigan consumer sentiment index dropped 5 points at mid-February to 56.2 from January's 61.2. February's figure was barely above the record low of 51.7 set May 1980. Continued boosts in jobless claims, additional stock market losses, and now a bump up in gasoline prices are likely to keep sentiment close to record lows for some time.

Consumer sentiment Consensus Forecast for final February 09: 56.0
Range: 52.0 to 57.0

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.)

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/16 1/30 2/13 2/27 3/13 3/27 4/17 5/1 5/15 5/29 6/12 6/26 7/10 7/24 8/14 Released For: Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug   Released On: 8/28 9/11 9/25 10/16 10/30 11/13 11/25 12/11 12/23             Released For: Aug Sep Sep Oct Oct Nov Nov Dec Dec

 

Farm Prices

3:00ET

Definition

The Department of Agriculture releases the index of prices received by farmers at the end of the month for the current month. It reflects changes through the middle of the month. The index is not adjusted for seasonal variation. It includes crop prices and livestock & product prices. Analysts monitor farm prices in order to see early warnings of inflation or deflationary pressures in the economy.

Why Do Investors Care?
Farm prices are a leading indicator of food price changes in the producer and consumer price indices. There is not a one-to-one correlation, but general trends move in tandem.

Investors need to monitor inflation closely. An individual investor who understands the process of inflation and how inflation influences the markets will no doubt benefit over those investors that don't understand the consequences of inflation.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how data such as farm prices influence the markets - and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation, because you know that the $100 won't be able to buy the same amount of goods and services a year from now, as it does today. If you were in a country where prices doubled every couple of months, you might want to charge 400% interest for a total payoff of $500 at the end of the year. In the United States, farm prices tells us that food prices were falling through the summer of 2005. This represents only one sector of the economy though. At the same time, the CPI was rising 3 to 3.5 percent during this period. You might want to add in one or two percentage points to cover default risk and the opportunity cost, but inflation remains the key variable in what interest rate you would charge.

Inflation (along with default risk and opportunity cost) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates accordingly. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking the trends in inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform.

 

 

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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