The recent global economic performance can at best be qualified as lackluster, given the multiplicity of issues threatening a return to a trend-like growth on a sustainable basis. The European debt crisis is intensifying each day and China, the global growth engine, is struggling to avoid a hard landing. That apart, the domestic economy is also going through a 'fits-and-starts recovery', with the housing and job markets- central themes to a recovery, not getting enough impetus to improve consistently.
The Greek election issue has now moved to the backburner now, with the pro-bailout New Democracy party securing 29.7 percent of the vote and 129 seats out of the total 300 seats and leading the election results. Antonis Samaras, the leader of the New Democratic party, will now have to negotiate to form a coalition government. Only when a government is in place in Greece, the Troika will return for negotiations to extend assistance. However, the troubles faced by the Greek economy are far from over.
Although the negative repercussions of a probable Greek exit from the eurozone should keep the other member nations and the Troika favorably disposed towards allowing more flexibility and time for Greece, the Mediterranean nation's future in the eurozone is very uncertain. Therefore, Greece could continue to pose a threat to the markets as well as the global economy.
Accentuating the recent softness, the Commerce Department reported last week U.S. retail sales edged down 0.2 percent month-over-month in May, marking the second straight month of decline. Sales by building/garden equipment stores, gasoline stations and food stores declined, while auto sales continued to be healthy. Excluding autos, sales were down 0.4 percent, the steepest drop since May 2010. Core sales, excluding autos, gasoline and building materials, rose only 0.1 percent.
Inflationary pressure is abating, providing some leeway for the Fed to tamper with its monetary policy, Consumer prices fell by a slightly steeper than expected 0.3 percent month-over-month in May, marking the biggest drop since December 2008. Much of the decline was due to a 4.3 percent drop in energy prices. Excluding food and energy prices, consumer prices rose 0.2 percent, in line with expectations.
Meanwhile, the producer price inflation report released by the Labor Department showed that producer prices fell by 1 percent month-over-month in May, the steepest drop since July 2009. The decline was due to a 4.3 percent plunge in energy prices and a 0.6 percent drop in food prices. Excluding food and energy, core producer price growth was in line with expectations at 0.2 percent.
U.S. industrial output fell 0.1 percent month-over-month in May, with manufacturing output declining by 0.4 percent, while mining and utility output rose 0.9 percent and 0.8 percent, respectively. Motor vehicles and parts production declined 1.4 percent, marking the first drop since November. Excluding motor vehicles and parts, manufacturing output was flat. Output of business equipment rose 0.3 percent, the thirteenth straight month of increase. Capacity utilization edged down 0.1 percentage points to 79 percent.
The New York Federal Reserve's manufacturing survey showed that the manufacturing sector in the region expanded, although witnessing a notable slowdown. The general business conditions index declined to 2.3 in June from 12.5 in May. The new orders index declined 6 points to 2.2 and the order backlogs index remained in negative territory for the 12th straight month. The employment index slipped 7 points to 12.4 and the average workweek index declined 9 points to 3.1. The 6-month outlook index also declined, dropping to 23.1 from 29.3 in May.
The results of the consumer sentiment survey done by Reuters and the University of Michigan showed that the consumer sentiment index fell 5.2 points to 74.1 in June, the first decline since August 2011. The current conditions index declined 5.1 points to 82.1 compared to a 5.4-point drop in the expectations index to 83.
Business inventories rose 0.4 percent month-over-month in April, with inventories up 6 percent year-over-year. Meanwhile, business sales rose 0.2 percent from the previous month and were up 5.4 percent from the year-ago period. The business inventories to sales ratio was at 1.26 in April compared to 1.25 in the year-ago period.
The 2-day FOMC meeting, some housing readings and the jobless claims report are among the market-moving economic data/events of the unfolding week. Traders are likely to pay attention to the post-meeting policy statement of the FOMC, the central bank's updated economic forecasts and chairman Ben Bernanke's press briefing, given the stimulus expectations that are gathering ground in the wake of recent weak data points.
The National Association of Home Builders' housing market index for June, the Commerce Department's housing starts report for May, the National Association of Realtors' existing home sales report, the Philadelphia Federal Reserve's manufacturing survey and the weekly jobless claims report are also likely to be on the investors' radar. The Federal House Finance Agency's house price index for April, the Conference Board's leading economic indicators index for May and announcements concerning the treasury auctions of 2-year, 5-year and 7-year notes round up the economic events of the week.
Several headwinds, including the ebbing U.S. economic momentum, the eurozone debt crisis and the fiscal cliff facing the U.S., have increased expectations that the Federal Reserve will announce additional easing when it meets this week.
Nevertheless, BMO Capital Markets expects the central bank to take a "wait-and-watch" attitude, as there is uncertainty about how much of the domestic slowdown is due to technical factors. Additionally, the firm is of the view that the inflation and unemployment scenario isn't making a strong case for an imminent easing.
Meanwhile, Danske Bank believes that an easing is on the cards. One of the options the firm sees is the extension of the forward guidance for maintaining an accommodative policy into 2015. This could be accompanied by an extension of the "Operation Twist" program, or the initiation of a sterilized bond-buying program. The possibility of another round of full-on quantitative easing is also not ruled out.
The decline in new home inventories is expected to give a small lift to housing starts in May. At the same time, existing home sales are expected to have declined in May, given the 5.5 percent decline in the pending home sales index for April. The painful recovery the housing market is experiencing is expected to continue for a while, as the fortunes of the housing market is closely tied to job market prospects and credit availability.
The National Association of Homebuilders is scheduled to release the results of its May survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to remain unchanged at 29.
Builder confidence improved in May. The housing market index based on the survey rose 5 points to a 5-year high of 29. The present conditions index rose 5 points compared to a 3 point-improvement by the expectations index. The index measuring prospective buyer traffic climbed 5 points to 23.
A 2-day FOMC meeting is scheduled to begin on Tuesday.
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 for May to come in at 720,000, while building permits are expected to have improved to 736,000.
Housing starts rose 2.6 percent month-over-month in April to a 2-month high of 717,000. Starts were up in the Midwest and the South, while they declined in the Northeast and West. Building permits, an indicator of future housing activity, fell 7 percent to 715,000.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 15th at 10:30 am ET.
Crude oil stockpiles edged down by 0.2 million barrels to 384.4 million barrels in the week ended June 8th. Inventories of crude oil were above the upper limit of the average range. Gasoline and distillate inventories declined by 1.7 million barrels and 0.1 million barrels, respectively.
While gasoline inventories fell below the lower limit of the average range, distillate inventories were in the lower limit of the average range. Refinery capacity utilization averaged 90 percent over the four-weeks ended June 8th compared to 89.1 percent over the previous four weeks.
The Federal Open Market Committee, the monetary policy-setting arm of the Federal Reserve is due to release the post-meeting policy statement at 12:30 am ET followed by the release of the FOMC forecasts at 2 pm ET. Chairman Ben Bernanke will hold a press briefing at 2:15 pm ET.
At its April meeting, the Fed maintained its economic assessment, repeating its view that the economy has been expanding moderately. The Fed termed inflation as having picked up somewhat compared to its earlier view of a subdued inflationary environment. The central bank also repeated its pledge to maintain a very accommodative monetary policy at least through late 2014.
In the updated economic forecasts released by the Fed, the central tendency GDP growth forecast for 2012 was upwardly revised to 2.4-2.9 percent from the previously estimated 2.2-2.7 percent. Meanwhile, estimates for 2013 and 2014 were trimmed slightly. The unemployment rate forecast for 2012 was also reduced to 7.8-8.0 percent from 8.2-8.5 percent, while the core PCE inflation forecast was upwardly revised to 1.8-2 percent from 1.5-1.8 percent.
The Labor Department is due to release its customary jobless claims report for the week ended June 16th at 8:30 am ET. Economists expect claims to edge down to 383,000 in the recent reporting week.
New claims at a seasonally adjusted level of 386,000 in the week ended June 9th, an increase of 6,000 from the previous week's revised level of 380,000.
Additionally the larger than expected increase comes atop revised figures that put the level of initial claims for the week ending June 2 at 377,000. Most economists had predicted a continuing drop in new claims for the week to 375,000.
The National Association of Realtors is scheduled to release its report on existing home sales for May at 10 am ET. Economists estimate existing home sales of 4.57 million for the month.
Existing home sales rose 3.4 percent month-over-month to a seasonally adjusted annual rate of 4.62 million units in April compared to expectations of 4.66 million units.
Inventories of existing homes rose 10 percent month-over-month, while inventories measured in terms of months of supply also rose to 6.6 months from 6.2 months. Nevertheless, the median house price rose 10 percent from last year.
The results of the Philadelphia Federal Reserve's manufacturing survey are due out at 10 am ET. Economists expect the diffusion index of current activity to show a reading of 0.5 for June.
The manufacturing index based on the survey came in at -5.8 in May from 8.5 in April. The new orders and unfilled orders indexes slipped into negative territory to -1.2 and -9.4, respectively, while the shipments index rose 1.7 points to 3.5. The employment indexes also worsened.
The Federal House Finance Agency, or FHFA, is set to release its house price index for April 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 0.6 percent increase in the house price index compared to a 1.8 percent increase in March.
The Conference Board is scheduled to release a report on the U.S. leading economic indicators index for May at 10 am ET. The consensus estimate calls for an unchanged reading for the month.
The U.S. leading economic indicators index fell 0.1 percent month-over-month in April, marking the first drop since September. Meanwhile, the lagging and coincident indicators indexes rose 0.5 percent and 0.2 percent, respectively.
There are no important economic reports due to be released on Friday.
by RTT Staff Writer
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