Week ahead in the US financial markets
By Joseph Brusuelas
The major releases will be clustered near the end of the week, with Thursday
seeing publication of second-quarter preliminary GDP, jobless claims, Chicago
PMI and the Q2 employment cost index and Friday the July non-farm payrolls
report. Heavyweights reporting near the end of the week include Disney,
Starbucks, Chevron and Berkshire-Hathaway. The only Federal Reserve speaker
scheduled for the week is FOMC Governor Frederic Mishkin who will give an
address titled "Whither Federal Reserve Communication", on Monday.
Tuesday 10am
Consumer Confidence (July) Consensus 50, Merk 49.2, Prior 50.4
Consumer confidence for the month of July should see another 30
days of sagging sentiment among individuals subject to an increasingly
difficult job environment. We expect that headline will decline to 49.2 on the
back of continued stress among consumers. With the rebate checks spent, there
is precious little to offset the real reduction in purchasing power among
consumers due to a weak dollar and rising inflation. The aforementioned factors
should combine to press the headline estimate of consumer confidence to
decade-long lows.
The combination of a 1.0% increase in personal consumption and a 1.9% increase
in net exports should provide a decent rate of economic expansion during the
initial estimate of output for Q2 '08. However, the data elsewhere is still
relatively weak. Firms carefully managed the purchase of stock and it does
appear that inventories contracted at a rate of 0.5% for the quarter. More
importantly, due to data suggesting that expenditures on fixed business
investment remain absolutely flat and the ongoing contraction in residential
investment, we do expect that overall investment should again provide a net
drag on overall growth. Thus we expect to see an increase of 2.1% in the
preliminary estimate of GDP for the second quarter of 2008.
Although inflation has continued to work its way through economy, there has
been scant evidence that it has yet to put upward pressure on wages. We expect
that to be the case again in Q2 when our forecast implies that employment costs
will increase 0.8%. Due to a relative lack of bargaining power, labor is in no
position to demand higher wages in a weak job market and uncertain economic
prospects going forward.
Initial claims for the week ending July 26 should see a slow and steady uptick
back towards 380,000. With the four-week moving average trending in that
direction after a bout of holiday-induced data, the weak labor market does not
at this time have the capacity to stimulate a move lower for the foreseeable
future.
Thursday 9:45am
Chicago Purchasing Manager Index (July)
Consensus 49, Merk 48.7, Prior 49.6
We expect that a month of weak orders and economic weakness in the upper
Midwest should combine to drag down the headline estimate of the July Chicago
PMI to 48.6. Our forecast implies that new orders should decline to 49.1 and
prices paid should increase to 86.3 for the month. Although, the cost of
imported oil eased during the month, the greater concern on a regional basis is
the latest round of planned cutbacks in auto assembly schedules in Detroit that
should further depress manufacturing activity in the area.
Thursday - throughout day
Total vehicle sales (July)
Consensus 13.9m, Merk 13.9m, Prior 13.6m
Hope in the auto sector that rebate checks would provide a modicum of support
for domestic sales did not materialize in June and sales took a sharp turn
south. On the back of some very pessimistic forecasts out of Detroit we do not
anticipate a recovery in demand for new cars anytime soon. Our forecast implies
a modest bounce back in July with the sale of domestic autos arriving at 10.1
million units and demand for foreign fuel efficient autos modestly advancing to
13.9 million.
The labor sector continues to see a steady downward drift and our forecast
implies that the market will observe a net loss of 93,000 jobs in July. We
expect that the service sector will see the second negative print in the past
three months and further losses in the goods production and manufacturing
sector should by the primary catalyst driving employment losses throughout the
economy. Given some of the interesting adjustments at the Bureau of Labor
Statistics regarding assumptions of job creation in the leisure and hospitality
industries in June, we think that the report is ripe for downward revisions
over the past two months and this should set the stage for what is shaping up
to be another month of negative data from the labor sector.
We have grown quite bearish on manufacturing conditions domestically,
regardless of the still relatively strong demand from the external sector.
Lackluster domestic demand has dragged down the Institute of Supply Management
headline reading below 50.0 four times during the first six months of the year.
Our forecast indicates that this will be the case again in July when the
headline falls to 49.3. We expect new orders to decline to 49.0 and prices paid
to increase to 89.5.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
