Last week, the Chinese and Australian central banks reduced interest rates, relaying the commitment of global central banks and governments to tackle any potential economic setback stemming the eurozone debt crisis. Despite Federal Reserve's concerns about the fiscal cliff facing the U.S. economy and the crisis across the Atlantic, its chairman Ben Bernanke did not suggest any concrete actions at his Congressional testimony last week.
Although recent data points to ebbing economic momentum, some of the setback could be due to technical reasons, related to the milder winter weather and 2012 capital spending plans pulled into 2011 to take advantage of tax incentives. Additionally, some economists believe a wait and watch attitude will help, given the fact that the central bank's "Operation Twist" program is set to expire this month.
Meanwhile, China released a slew of data over Saturday and Monday, allaying fears of a hard landing, which gained ground following last week's interest rate cut. Industrial output rose by less than expect, while retail sales growth was soft. That said, fixed asset investment and trade balance came in better that expected.
After taking a slippery stance, Spain finally sought a bailout for its banking system, agreeing to the terms of the bailout package. Spanish banks can now access loans from the EFSF or ESM and has recourse to loans up to 100 billion euros. Though no fiscal riders are attached to the loans, the nation may be required to go about with a fundamental restructuring of its banking system.
The focus now shifts to the June 17th Greek election and the beleaguered nation's place in the eurozone is secure only if a pro-bailout party is elected to form a government. If Greece exits from the eurozone, it would be not be an one-off event and there could be others being oozed out from the currency union.
Domestic data released last week accentuated the fragility of the economic recovery. U.S. factory orders fell 0.6 percent month-over-month in April following a downwardly revised 2.1 percent drop in March. The decline was partly due to the expiration of a business investment tax credit at the end of last year.
The results of the Institute for Supply Management's service sector survey showed that its non-manufacturing index edged up 0.2 points to 53.7 in May. The business activity index climbed 1 point to 55.6 and the new orders index rose 2 points to 55.5, while the order backlogs index remained flat at 53. Meanwhile, the employment index fell 3.4 points yet held above the '50' mark.
With markets rebounding on stimulus hopes, traders are likely to closely watch the unfolding week's calendar to assess the strength of the domestic recovery. The Commerce Department's retail sales report for May, the New York Federal Reserve's manufacturing survey for June, the Federal Reserve's industrial production report for May, the weekly jobless claims report and the Reuters and the University of Michigan's consumer sentiment index for June are among the key economic reports of the week.
Also featuring in the calendar are the Labor Department's import and export price indexes for May, the producer and consumer price inflation reports for May and the Commerce Department's business inventories report for April. The Treasury Budget for May and the results of the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The healthy run of retail sales growth should stall in May, given the fact that auto and gasoline sales fell sharply in the month. Nevertheless, excluding autos and gasoline, sales growth may have remained healthy, thanks to solid chain store sales results.
The pullback in gasoline prices may have also hit the consumer price index, which is expected to show a decline in May. The decline in gasoline prices is quite unusual for this time due to the fact that the summer driving season commences around this time. The decline in headline inflation should bring the annual inflation rate to 1.8 percent in May from 2.3 percent in April.
Slowing manufacturing output is expected to have impacted industrial production growth in May. The slowdown comes in the wake of some economic data pointing at a loss of momentum of the domestic economy.
There are no important economic reports due to be released on Monday.
The export & import price indexes for April, which gives the changes in the prices of non-military goods and services traded between the U.S. and the rest of the world, are due out at 8:30 am ET. The consensus estimates call for a 1.1 percent month-over-month decline in import prices but a 0.1 percent increase in export prices.
Import prices in the U.S. fell by a more than expected 0.5 percent in the month of April, after surging up by 1.5 percent in March. Economists had expected prices to edge down by about 0.2 percent. At the same time export prices rose by 0.4 percent in April following a 0.8 percent increase in March. Export prices had been expected to increase by about 0.2 percent.
The Treasury Budget, a monthly account of the surplus or deficit of the federal government, is due to be released at 2 PM ET. The budget is considered an indicator of budgetary trends and the thrust of fiscal policy. Economists expect a deficit of $125 billion for May compared to a surplus of $59.1 billion for April.
The U.S. Labor Department is scheduled to release its report on the producer price index for May at 8:30 am ET. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for May to have declined by 0.6 percent but the core producer price index may have increased by 0.2 percent.
Producer price index fell by 0.2 percent in April after coming in unchanged in March. Economists had expected the index to remain flat for the second straight month.
Excluding the sharp drop in energy prices as well as a modest increase in food prices, the core producer price index edged up by 0.2 percent in April. The modest increase in core prices, which compares to a 0.3 percent increase in the previous month, came in line with the expectations of economists.
Retail sales of food and retail companies with one or more establishments that sell merchandise and associated services to final consumers are slated to be released at 8:30 am ET. For May, economists estimate a 0.2 percent drop in retail sales and a 0.1 percent dip in retail sales that exclude autos. On the other hand, sales, excluding autos and gasoline, may have risen 0.4 percent.
U.S. retail sales rose 0.1 percent month-over-month in April following a 0.7 percent increase in March. The slowdown reflected the impact of an early Easter. Auto sales rose 0.3 percent, furniture sales climbed 0.7 percent and electronics and appliance sales were up 0.2 percent. On the other hand, building materials, garden equipment & supply dealers sales fell 1.8 percent. That said, core retail sales that exclude gas, autos and building materials, rose 0.4 percent, marking the fourth straight month of gains.
The Commerce Department is scheduled to release its business inventories report for April at 10 am ET. The report summarizes the results from the monthly retail trade, wholesale trade and factory goods orders surveys. The report is expected to show a 0.3 percent increase in business inventories for the month.
Business inventories rose a smaller than expected 0.3 percent month-over-month in March, while business sales were up 0.6 percent. The business inventories to sales ratio was at 1.27 compared to 1.26 in the year-ago period.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 8th at 10:30 AM ET.
Crude oil stockpiles fell by 100,000 barrels in the week ended June 1st. Meanwhile, gasoline inventories rose by 3.3 million barrels.
The consumer price index for May is scheduled to be released at 8:30 am ET. The index is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists expect the headline index to have declined by 0.2 percent compared to a 0.2 percent increase in core inflation.
Weighed down by energy prices, consumer prices remained unchanged in April. Food prices were up a modest 0.2 percent. Excluding food and energy prices, consumer prices were up 0.2 percent.
The Labor Department is due to release its customary jobless claims report for the week ended June 9th at 8:30 AM ET. Economists expect claims to edge down to 375,000 from 377,000 in the previous week.
Initial jobless claims at 377,000 for the week ended June 2nd, on a seasonally adjusted basis, a drop of 12,000 from the previous week's revised level of 389,000. And while the previous week's figure was revised up from the 383,000 initially reported, the week's data was still below the 379,000 level expected by most economists.
The four-week rolling average of new unemployment claims, a figure that reduces some of the week-to-week volatility in the reports, ticked up slightly, rising 1,750 to 377,750 from the previous week's revised average of 376,000.
The results of the New York Federal Reserve's empire state manufacturing survey, which elicits response from 200 manufacturing executives in New York state, is slated to be released at 8:30 am ET. The headline general business conditions index for June is expected to come in at 13.8.
In May, activity in the manufacturing sector in the region expanded at a faster pace. The business conditions index rose 10.5 points to a 2-month high of 17.09. The new orders index rose about 2 points to 8.3 and the shipments index climbed 17.7 points to 24.1. The employment indexes also improved, with the number of employees index rising about 1 point to 20.5, while the average workweek index improved about 6 points to 12.1.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate flat industrial production performance for May, while manufacturing output growth is estimated to have declined by 0.3 percent. Capacity utilization may have remained unchanged at 77.5 percent.
U.S. industrial output rose a better than expected 1.1 percent month-over-month in April, thanks to a 4.6 percent jump in utility output. Manufacturing output also rebounded, rising 0.6 percent on solid support lent by motor vehicle and parts and business equipment. Capacity utilization rose by a better than expected 0.8 points to 79.2 percent.
The preliminary report of the Reuters/University of Michigan's consumer sentiment survey for May is scheduled to be released at 9.55 am ET. The consumer sentiment index is expected to have declined to 77.5 from 79.3 in the previous month.
by RTT Staff Writer
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