Bobbys Corner-Open Market-Dec.11.2009

Gobood Morning:

Demand for higher yielding assets caused the JPY to decline.  Speculation that the global economy is showing signs of recovery is the main catalyst for investors seeking higher yielding assets.  
In general it was a quiet overnight session with the EUR/USD trading within familiar ranges.

World equity markets rose along with commodity prices.  Copper rose, leading the gains on the London Metal Exchange.  Gold also increased as did crude oil.

Today’s main focus will be Retail Sales data due out at 8:30 Am.

Oil:$ 70.97                                   Gold:$1140.20

Today’s data:
Retail Sales:            exp: .6%                          prior: 1.4%
Import Prices:       exp; 1.2%                       prior: .7%
U of Mich:                exp: 68.8                       prior: 67.4
Bus Inv:                    exp: -.2%                       prior: -.4%

HAVE A GREAT DAY-GREAT WEEKEND & GOOD LUCK

Retail Sales due at 8:30 AM. Michigan Confidence due at 10:00

US Retail Sales for the month of November will be released at 8:30 AM. The expectation is for a gain of +0.6% vs a gain of +1.4% last month.  The ex Auto release is expected to show a gain of +0.4% vs +0.2% last month.  The Ex Auto figure has been up for 3 straight months.  A gain this month would be the longest string since July 2008.  The consumer accounts for near 70% of US GDP.  

Yesterday, the Fed announced that Net Household Wealth increased for the 2nd quarter in a row.  This was after 8 quarters of declines.  The gain in wealth is positive for consumer confidence and potentially spending.  The question is was the decline too damaging.  The decline from the top to bottom cut 26% of household wealth and given the leverage that consumers accumulated the decline was likely magnified.    This is the rub and will be what determines the spending trends going forward.  If the consumer is happy with the increased wealth, confident with employment, perhaps spending is increased. If the consumer is focuses on the overall decline in wealth still and looks at the gains as just a partial pay back or if the decline in wealth has done too much damage to the leveraged balance sheet of the consumer (ie. foreclosure is more of a worry), then the spending will remain depressed. 

At 10:00 we will be getting a measure of confidence when the Univ of Michigan Preliminary Confidence estimate is released for the month of December.  Last month the  measure fell for the second consecutive month to 67.4.  The high off the lows reached 73.5.  The expectation this month is for a rise to 68.8.  Confidence spurs spending.   Keeping the confidence moving higher is paramount for a more firm economic foundation that adds new jobs and sustains growth.

Also due for release at 8:30 will be the US Import Price Index for November.  This measure is expected to show a gain of 1.2% for the month on month and +2.9% YoY.  Over the next few months this measure will show sharp gains YoY as the effects of sharply lower values from last year fall out of the equation. In November and December last year price on MoM basis fell by -7.4% and -16.9% largely on the back of plunging oil prices.   This month the YoY is going from -5.7% to +2.9 largely reflecting the November 2008 effect.  When-16.9% falls out next month, the YoY index will soar even higher.  This inflation is partly influenced by the declining US dollar.   A lower dollar increases import prices all things being equal.  If the US is dependent on that good, that is bad. If their are domestic producers who can be a replacement supplier, it may not be so bad.    It will be interesting to see if the market starts to pay more attention to the effects of import prices going forward as the true numbers (less effected by the soaring and plunging oil prices) start to filter through the numbers.

US Retail Sales and Bernanke highlight the events today

The US Retail Sales for the month of october will be released at 8:30 AM today.  The expectation is for a gain of 1.0% for the month with the ex- Auto showing a smaller gain of +0.4%. Earlier this month the October Vehicle Sales for the US showed a rise to 10.45 Million units vs 9.2 Million. Last month Retail Sales fell by -1.5% as the cash for clunker program expired.  However, the fall was less than expectations and the core measure also showed a 0.5% increase for the month.  The Ex Auto increase expected this month would be the 3rd straight monthly increase. 

Also out this morning is the Empire Manufacturing Index for the month of November. This is one of a number of regional indices which show the strength or weakness of the local manufacturing economy.   The expectation is for a decline t0 30.00 from 34.57 last month.  Last month this index rose greater than expectations and rose to the highest level since May 2004.  The index surveys Manufacturers as whether or not they are growing. A measure above zero is indicative of growth, while one below zero indcates contraction.  The index has been positive for 3 months (this is to be the 4th month above zero).   The government stimulus program and cash for clunkers has helped the manufacturing momentum in the area which accounts for 6% of economic activity in the state of NY.

In Canada Manufacturing Sales for September will also be released at 8:30 AM.  The expectation is for a rebound from a -2.1% decline last month. This month a gains of +1.7% is expected. Last month the decline was attributed to fewer shipments of aircraft and Autos.  A stronger number typically benefits the CAD$ (USDCAD down) while a weaker number will tend to have the effect of weakening the currency. However, with the US  Retail Sales coming out at the same time the market can be more volatile.

Fed’s Bernanke is due to speak about the economic outlook at the Economic Club Luncheon in NY at 12:15 AM NYT. It is unlikely that the Fed change anything materially since the last interest rate decision which took place in early November.

US Mortgage Applications fall 1.8% for the latest week

The US Mortgage Applications fell by 1.8% for the current week.  This was on the back of a large 16.4% gain last week.  The components in the report showed that the Purchase index fell by -5% vs a gain of 13.2% last week. The Refinance Index fell by -0.1% vs a gain of 18.2% last week.  The  average rate rose to 5.02% from 4.88% last week. 

Although down, the fall is from the highest level in 4 months. 

Later this morning the Retail Sales will be released for the month of September. The expectation is for a decline of -2.1% vs a gain of 2.7% last month. The Less Auto release is expected to show a gain of 0.2% vs a larger than expected gain of 1.1%.  The number is expected to be effected by the cash for clunkers program which inflated last months number but will subtract from this months headline number. 

Also due for release at 8:30 will be the Import Price Index for September.  This number is expected to show a MoM gain of 0.2% with the YoY rising to -11.4% from -15.0% last month.  This series is still working through the large declines from 2008 when in Sept, October, November and December the MoM declines were -3.6%, -6%, -7.4% and -16.9% respectively. The falling out of those values will show that the dollar decline and higher oil is raising the import prices by a fairly healthy rate of greater than 8%.  Although, there are counter deflationay effects, if that inflation should slow, the inflation worries will resurface.  That is down the road however.

US Retail Sales, PPI and Empire Manufacturing Index due out at 8:30 AM

The US will release the Retail Sales for August along with the PPI for the same month.  The Retail Sales data will be boosted by Auto sales as a result of the Cash for Clunkers program. The estimate is for a gain of 1.9% for the month with the Ex Auto component estimated to come out at +0.4% (vs -0.6% last month). 

The PPI is expected to rebound with a 0.8% gain after falling by -0.9% last month. They Ex Food and Energy is expected to rise by 0.1% for the month versus a fall of 0.1% in July.  For the Year on Year figures, the inflation rate is expected to fall by -5.3% vs -6.8% last month.  Part of the gain is as a result of the expected large increase this month. The other part is as a result of the falling out of a -0.5% change that occurred last August. Over the coming months, -7.2% of cumulative monthly declines in PPI will drop out of the YoY data (see declines in Sept, Oct, Nov and Dec 2008 in the chart above).  As a result, the PPI will show a quick move higher toward +2.0% YoY.

The Empire Manufacturing Index is expected to rise to 15.0 from 12.08 last month.  The positive reading last month was the first increase since April 2008. 

Component Values from last month showed New Orders rose to the highest level since November 2007.

Prices Paid                            13.83
Prices Received                  -12.77
New Orders                            13.43
Shipments                               14.11
Delivery Time                      -10.64
Inventories                           -22.34
Unfilled Orders                    -9.57
Number of Employees      -7.45

Canada Retail Sales come out better than expected

The headline number rose by 1.2%. The number ex+0. autos also came in better at +0.7 vs expectation of +0.5%.  The gain was the 4th in the last 5 months. 

Autos (+3,4%) helped the number.  7 of 8 sectors followed showed gains.  This may be indicative of a rebound in demand from foreign purchasers. 

The USDCAD is slightly lower (higher CAD$) off the number and should remain under pressure.  Yesterday, however, the BOC warned that the higher CAD$ has the potential to hurt the recovery.

From a technical perspective the pair remains below the 100 hour MA.  The pairs price has been below the MA for 7 straight days after breaking lower at 1.1629, as the market trended lower from the highs on economic recovery and higher oil prices.  The decline has erased more than 61.8% of the prior move higher. 

Yesterday and today, the price has gotten closer to a test as the market consolidates at the lower level.  The current value is at 1.1107.  Above that level is the 1.1143 level.  A move above this level should lead to additioal corrective move higher.  The 1.1143 level will be watched. Above that is the high from last week at the 1.1223 level and the 200 hour moving average at the 200 hour MA at the 1.1281.

Lower oil is working against a higher CAD$ this morning.

EUROZONE Retail Sales Released

The EU Retail Sales number came out better than expected at 0.2% from the previous -0.6%.  A rise to 0.0% was forecast today. 

The EUR firmed up by a few PIPS following this data.

UK Data Released

UK’s Retail Sales beat forecasts at 0.9% from the previous 0.3%.  A rise to 0.5% was expected. 

UK’s M4 Money Supply rose as well to 0.9% from the previous 0.2%.  A rise to 0.5% was forecast.

The UK Prelim Business Investment dropped to -5.5% from the previous -1.5%.  A drop to -4.0% was forecast.

Despite Retail Sales beating forecasts the GBP is having a hard time recovering after that exaggerated move.  The GBPUSD is right near session lows.

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