Notwithstanding last week's lukewarm domestic data, markets were inclined to risk taking last week, as a few bond auctions by Eurozone nations received good responses. Even domestically, all is not lost. Despite the rise in weekly jobless claims report, the underlying trend is still pointing downwards. Signaling that the develeraging among consumers is slowing, outstanding consumer credit spiked in November. Retail sales did rise in December, although the increase trailed economists' estimate.
If the mild upward momentum seen in the housing sector strengthens, it can go a long way towards boosting economic growth. After remaining cautious for much of the economic recession and the debilitated recovery seen during the post-recession period, consumers may slowly throw caution to winds and get back to their spending ways, provided the job market turns supportive.
Surprisingly, French and Italian industrial output unexpectedly increased in November, while Germany, the biggest European nation, and the U.K. saw declines in industrial as well as manufacturing output. Meanwhile, a gradual retreat in consumer price inflation in China has strengthened hopes of the Dragon nation implementing monetary policy easing - a move, which could sound music to the ears of several economies, which are heavily reliant China for their economic momentum.
A report released by the Commerce Department last week showed that U.S. retail sales rose 0.1 percent month-over-month in December. The previous month's growth was upwardly revised to 0.4 percent from the initially estimated 0.2 percent increase. Sales, excluding autos, fell 0.2 percent, the first drop since May 2010.
Auto sales climbed 1.5 percent, while electronics/appliances store sales fell 3.9 percent and gas station sales slipped 1.6 percent. Retail sales, excluding autos, gasoline and building materials, edged down 0.2 percent.
The Reuters and the University of Michigan's consumer sentiment survey showed that the preliminary consumer sentiment index rose 4 points to 74 in January, the fifth straight month of improvement and the highest reading since May 2011. The current conditions index climbed 3 points to 82.6 and the expectations index was up 4.8 points to 68.4.
Business sales rose 0.3 percent month-over-month in November and were 9.6 higher than in the year-ago period. Business inventories at the end of November were also up 0.3 percent and increased 8.5 percent from the year-ago period. The total business inventories to sales ratio was at 1.27 compared to 1.28 in November 2010.
At the same time, wholesale inventories at the end of November were up 0.1 percent month-over-month and were 10.5 percent higher than a year-ago. Meanwhile, wholesale sales climbed a steeper 0.6 percent from October and were up 11.3 percent from last year. The inventories to sales ratio came in at 1.15 compared to 1.16 percent in November 2010.
Additionally, outstanding consumer credit rose by an annual rate of 9.9 percent to $2.48 trillion, with revolving credit tied to credit cards rising by 8.5 percent, while non-revolving credit tied to autos climbed by 10.7 percent.
Some of the lackluster economic data released in the past week has rendered the unfolding week's economic data important, as traders strive for more clarity on the economic outlook. Traders may stay focused on a couple of housing readings, namely the housing starts report for December and the National Association of Realtors' housing market index for January, the weekly jobless claims report, the Federal Reserve's industrial production report for December and the results of the manufacturing surveys of the New York and the Philadelphia Federal Reserves.
The Labor Department's producer and consumer price inflation reports for December and announcements concerning the Treasury auctions of 2-year, 5-year and 7-year notes round up the economic calendar of the week.
Industrial output is expected to see a strong rebound in December, riding on the back of the rebound in auto production and strong business equipment demand. Mining output may also have risen.
At the same time, housing starts may have seen some softness in December following a strong performance in November. That said economists are optimistic of a slow and steady improvement in housing market conditions. BMO Capital Markets sees promise for housing starts from the need to replenish super lean inventories.
Meanwhile, a surge in the pending home sales index in the past couple of months points towards another increase in existing home sales. Therefore, inventories measured in terms of months of supply should reduce slightly and the annual drop in existing home prices should slow down.
Monday
The markets remain closed on account of a public holiday.
Tuesday 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 January is expected to come in at 10.50.
Manufacturing conditions in the region improved in December. The general business conditions index rose to 9.5 in December from 0.6 in November. The new orders index climbed 7.2 points to 5.1, while the order backlogs index slipped to -15.1 from -7.3. The inventories index remained in negative territory despite improving to -3.5 from -12.2.
The employment indexes were mixed, with the number of employees index rising 6 points to 2.3, while the average workweek index declined to -2.3 from 2.4. At the same time, the 6-month outlook index rose to 52.3 from 39.
Wednesday
The U.S. Labor Department is scheduled to release its report on the producer price index for December 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 December to remain unchanged, but the core producer price index is expected to have risen by 0.1 percent.
The producer price index rose by 0.3 percent in November after falling by 0.3 percent in October. Economists had been expecting the index to edge up by 0.2 percent.
Excluding the increase in food prices as well as a modest uptick in energy prices, the core producer price index inched up by 0.1 percent in November after coming in unchanged in October. The core index had also been expected to increase by 0.2 percent. The Treasury Department is due to release a report on the flows of financial instruments into and out of the U.S. for November at 9 am ET.
The Federal Reserve's industrial production report is due out at 9:15 am ET. Economists estimate 0.5 percent growth in industrial production for December.
Industrial output fell 0.2 percent in November, with the drop coming about mainly due to a 3.4 percent decline in motor vehicle/parts production. Computer/electronics output also fell. The softness stemmed from supply disruptions due to the floods in Thailand. Capacity utilization edged down 0.2 points to 77.8 percent.
The National Association of Homebuilders is scheduled to release the results of its January survey on homebuilders' confidence at 10 am ET. The consensus estimates call for the index to remain unchanged at 21.
The housing market index rose 2 points to 21 in December. This marks the third straight month of growth, with the index rising to its highest level since May 2010. The current sales conditions index rose 2 points compared to a 1 point-increase by the sales expectations index, while the index of prospective buyer traffic climbed 3 points.
Thursday
The consumer price index for December 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 as well as the core index to have risen 0.1 percent.
The consumer price index for November was unchanged from October levels, which showed a 0.1 percent decline from September. The overall lack of change in consumer prices came as a result of a 1.6 percent drop in energy prices, which offset increases in food prices and other sectors of the economy.The "core" consumer price index, which excludes the food and energy sectors and is considered a better barometer of inflationary pressure, increased by 0.2 percent in November.
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 of 678,000 for December, while building permits are also expected at 670,000.
Housing starts rose 9.3 percent month-over-month to 685,000 in November, marking the highest level since April 2010. October's reading was upwardly revised to 630,000. Single family and multi-family starts rose 2.3 percent and 32.2 percent, respectively. Building permits unexpectedly rose, advancing 5.7 percent compared to the previous month and were 20.7 percent higher than the year-ago levels.
The Labor Department is due to release its customary jobless claims report for the week ended January 14th at 8:30 AM ET. Economists expect claims to have fallen to 383,000.
The number of individuals claiming unemployment benefits rose by 24,000 to 399,000 in the week ended January 7th, the highest level since the end of November. The four-week average climbed to 381,750 from the week-ago's 374,000. Continuing claims climbed 19,000 to 3.63 million in the week ended December 31st.
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 10 for January.
In December, the index of manufacturing conditions rose to 10.3 from 3.6 in November, the highest level since April, The new orders index rose 8.4 points to 9.7 and the order backlogs index climbed 8.7 points to 7.2. Meanwhile, the inventories index fell to -14.9 from 6.6. The employment indexes also declined from the month-ago period. The 6-month outlook rose 2.2 points to 44.1.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended January 13th at 10:30 AM ET.
Crude oil stockpiles rose by 5 million barrels to 334.6 million barrels in the week ended January 6th. Inventories were above the upper limit of the average range.
Gasoline stockpiles rose by 3.6 million barrels, remaining above the upper limit of the average range. Distillate inventories also increased, rising by 4 million barrels and were in the middle of the average range. Refinery capacity utilization averaged 84.9 percent for the four weeks ended January 6th compared to 84.8 percent in the previous week.
Friday
The National Association of Realtors is scheduled to release its report on existing home sales for December at 10 am ET. Economists estimate existing home sales of 4.65 million for the month.
Existing home sales rose 4 percent month-over-month to a seasonally adjusted annual rate of 4.42 million units in November. Single-family home sales rose 4.5 percent, while condominium sales were almost flat. Inventories measured in absolute terms fell 5.8 percent, while in terms of months of supply, inventories fell to 7 months from 7.7 in October. Distressed sales accounted for 29 percent of total sales compared to 28 percent in October, while first time buyers accounted for 35 percent of the total.
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