The equity markets have been on a roll ever since Main Street has been throwing forth promising economic data that has served to cement economic hopes. The U.S. economy has been outperforming its peers since the middle of 2011. If the situation continues to improve, there is likelihood that the Federal Reserve may be forced to begin normalization of interest rates earlier than its European and U.K. counterparts. None other than the Fed has acknowledged the improvement.
Clearly, the labor market is seeing a turnaround. Last week, the Labor Department said the number of individuals claiming unemployment benefits fell to 351,000, matching the recovery low. Even the U.S. financial system is seen to be faring better than Europe's. In contrast to the U.S. , most eurozone economies are heading into another recession, with growth in the region expected to remain fragile due to the compulsion to adopt austerity measures required for bringing about fiscal discipline.
FTN Financial said in a research note that the level of interest rates and the shape of the curve are now consistent with the Federal Reserve beginning to raise rates in the summer of 2013, more than a year earlier than the central bank's current itinerary. Prices of the benchmark 10-year Treasury note plunged in reaction to the macroeconomic scenario, with the yield climbing 0.27 percentage points over the past week.
The Commerce Department reported last week that retail sales rose 1.1 percent month-over-month in February, while the previous month's 0.4 percent increase was upwardly revised to 0.6 percent. Auto sales climbed 1.9 percent, offering support to the headline number. Gas station sales climbed 3.3 percent. The strength was broad based, with clothing & accessories and building materials also showing firmness. On the other hand, furniture sales slid 1.2 percent. Core retail sales, excluding autos, gas and building materials, which are used in GDP calculations, rose 0.5 percent.
Manufacturing readings released last week suggested continued momentum in the sector. The New York Federal Reserve's survey showed the manufacturing activity picked up pace in March. The business activity index based on the survey rose to 20.21 in March from 19.53 in February. However, the new orders index slipped 2.89 points to 6.84 and the shipments index declined 4.58 points to 18.21. On the other hand, the employment indexes improved from the month-ago levels.
The Philadelphia Fed's survey showed that its manufacturing index rose to 12.5 in March from 10.2 in February. The new orders index slipped 3.3 points to 11.7 and the order backlogs index slipped to -11 from 2.2. The shipments index was down 11.5 points. While the number of employees index rose 5.7 points to 6.8, the average workweek index slid 7.4 points to 2.7. The 6-month outlook index edged down 0.4 points to 32.9.
Industrial production remained unchanged in February compared to the previous month compared to expectations for 0.4 percent growth. Offer some consolation was an upward revision to the previous month's reading. Motor vehicle and parts production slipped 1.1 percent and mining output extended its slide, dropping 1.2 percent. Capacity utilization edged down to 78.7 percent.
Consumer prices rose 0.4 percent month-over-month in February, with the annual rate of consumer price inflation holding steady at 2.9 percent. Higher gasoline prices were responsible for much of the increase. Core consumer prices were up a tamer than expected 0.1 percent on a monthly basis, while annually the rate was 2.2 percent, down 0.1 percentage points from a month-ago.
Meanwhile, producer prices rose 0.4 percent month-over-month in February, with higher energy responsible for much of the upside. However, the annual rate of producer price inflation cooled off to 3.3 percent from 4.1 percent, benefiting from an easier comparison. The monthly increase in core producer prices was 0.2 percent, in line with estimates.
The post-meeting policy statement of the Federal Reserve Open Market Committee released last week noted a moderate expansion in overall economic activity, further improvement in labor market conditions and a notable drop in the unemployment rate. The central bank also made a reference to rising crude prices while discussing inflation. The Fed's assessment of economic growth over the coming quarters was upgraded to 'moderate' from 'modest.'
As expected, the central bank maintained the fed funds target rate at 0-0.25 percent and repeated its intention to maintain rates at exceptionally low levels at least until 2014. The Fed also expressed its commitment to continue with its asset purchase program.
The housing market is on the radar in the unfolding week, as several key housing reports are scheduled to be released during the week. Traders may closely track the National Association of Realtors' existing home sales report for February, the Commerce Department's new home sales and housing starts reports for February, the National Association of Homebuilders' housing market index for March and the Federal House Finance Agency's housing market index for January.
The jobless claims report and a few Fed speeches due for the week may also garner some attention. The Conference Board's leading indicators index for February and announcements concerning Treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
Housing starts may have seen a slight increase in February, as multi-family housing starts benefit from rental demand. Single-family starts are seeing some degree of buoyancy. Even with the recent increases, housing starts are still way below their peak.
Similarly, existing home sales are also expected to see a modest increase, given the trend suggested by pending home sales and the recent increase in new purchase application. The gains seen in existing home sales over the past six months have depleted some of the home inventories.
Dallas Federal Reserve Bank President Richard Fisher speaks to the Centre for the Study of Financial Innovation in London at 7:30 am ET.
The National Association of Homebuilders is scheduled to release the results of its March survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to increase to 30.
The housing market index rose 4 points to 29, marking the highest level since May 2007. The present conditions and future expectations indexes both rose 5 points and the index measuring prospective buyer traffic rose 1 point.
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which are the number of permits issued for new housing units each month, is slated to be released at 8:30 am ET. Economists estimate housing starts as well as building permits for February to come in at 700,000 each.
Housing starts climbed 1.5 percent to a seasonally adjusted annual rate of 699,000 units. However, on a sore note, single-family starts slipped 1 percent, marking the first drop in September, while multi-family starts rose 8.5 percent in January. Building permits, considered an indicator of future housing activity rose a less than expected 0.7 percent, although permits are now at their highest level in 3-1/2 years.
Federal Reserve Chairman Ben Bernanke is scheduled to deliver his first of four lectures at the George Washington School of Business at 12:45 pm ET. The second one is scheduled for Thursday.
Minneapolis Federal Reserve Bank President Naryana Kocherlakota will speak to the Hyman P. Minsky Lecture Series at Washington University, in St. Louis at 5:30 pm ET. He will also take questions from the audience and then the media.
The National Association of Realtors is scheduled to release its report on existing home sales for February at 10 am ET. Economists estimate existing home sales of 4.61 million for the month.
Existing home sales surged up 4.3 percent month-over-month in January, while economists had expected a much more modest increase. Single-family home sales rose 3.8 percent compared to an 8.3 percent jump in the sales of condominiums. Inventories of existing homes fell 0.4 percent to 2.31 million homes, while inventories measured in terms of months of supply also declined to a 6-year low of 6.1 months. The median price of an existing home fell 4.6 percent month-over-month to $154.7 million.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended March 16th at 10:30 am ET.
Crude oil stockpiles rose by 1.8 million barrels to 347.5 million barrels in the week ended March 9th. Crude stockpiles were in the upper limit of the average range.
Meanwhile, gasoline inventories declined by 1.4 million barrels but still remained in the upper limit of the average range. Distillate inventories fell by 4.7 million barrels, remaining in the middle of the average range. Refinery capacity utilization averaged 83.9 percent over the four weeks ended March 9th compared to 84.2 percent over the previous four weeks.
The Labor Department is due to release its customary jobless claims report for the week ended March 17th at 8:30 am ET. Economists expect claims to edge up to 352,000 in the recent reporting week.
The initial claims for unemployment benefits fell 14,000 to 351,000 in the week ended March 10rh from an upwardly revised reading of 365,000 in the previous week. Continuing claims for the week ended March 3rd fell 84,000 to 3.34 million.
The Federal House Finance Agency, or FHFA, is set to release its house price index for January at 10 am ET. The index is a weighted, repeat-sales index, which measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.4 percent month-over-month increase in the house price index following a 0.7 percent increase in the previous month.
The Conference Board is scheduled to release a report on the U.S. leading index for February at 10 am ET. The consensus estimate calls for a 0.6 percent increase in the leading indicators index for the month.
In January, the leading economic indicators index rose 0.4 percent month-over-month following a 0.5 percent increase in December. The coincident economic indicators index rose by 0.2 percent compared to a 0.4 percent increase in the lagging indicators index.
The Commerce Department is due to release its new home sales report for February at 10 am ET. The consensus estimate calls for new homes sales of 325,000.
In January, new home sales unexpectedly fell by 0.9 percent month-over-month to 321,000, marking the first decline in five months. Nevertheless, offsetting some of the negativity, there were upward revisions to the numbers of the previous three months.
Atlanta Federal Reserve Bank President Dennis Lockhart is due to speak to students at Georgetown University in Washington on his career and the Fed at 2:30 pm ET. He will also take questions from the audience. Additionally, St. Louis Federal Reserve Bank President James Bullard is scheduled to speak to the 15th Asian Investment Conference in Hong Kong at 9 pm ET.
by RTT Staff Writer
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