The week ahead will be dominated by the presidential election in the United States. Obviously, how congress takes shape will matter a great deal as well. It is my view that any political victory for the Republican Party will travel with stocks. This is not to say a Democratic Party victory will penalize stocks. Political leadership will also change in the economically critically Communist China, where new leaders will be appointed this week. Still, there are more than just political catalysts to consider this week. In Greece, Parliament will once again take up austerity and the Greek unions will be striking against it. The European Commission will update its economic forecasts for the region, and the ECB will issue new monetary policy, which will likely be unchanged. Besides all these dynamic factors, several regular monthly and weekly economic reports weigh, plus a slew of important earnings reports.
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The Presidential Election PlusMonday
There’s just one economic report on the schedule Monday, the ISM Nonmanufacturing Index. The measure of the service sector of the economy is critically important, due to the importance of services industries in America. The service sector is responsible for 90% of American economic output. Economists expect the Nonmanufacturing Index will show an October decline to 54.9, from 55.1 in September. Remember though that a measure above 50 continues to represent economic expansion. The lower figure simply represents a slower rate of expansion.
European markets will be tuned into Greece, as its Parliament addresses an austerity package. The Asia-Pacific region will walk on eggshells Monday, as the U.S. and Japan hold biennial joint military exercises amidst tensions between Japan and China.
Markets in Russia and Venezuela are closed Monday, in case you are into Russian roulette, Colombian bowties and giving your money away to crooked governments. As for shares trading in the good old USA, Toyota (NYSE: TM) and Nissan (OTC: NSANY) will report earnings results. Look for similar news from the likes of Express Scripts (Nasdaq: ESRX), Sysco (NYSE: SYY), XL Group (NYSE: XL), Humana (NYSE: HUM), Rockwell Automation (NYSE: ROK), Consolidated Edison (NYSE: ED), CF Industries (NYSE: CF), Entergy (NYSE: ETR), EOG Resources (NYSE: EOG), Integrys Energy Group (NYSE: TEG), Intercontinental Exchange (NYSE: ICE), Southern Company (NYSE: SO) and Time Warner Cable (NYSE: TWC).
It’s all about the election Tuesday, and with just the regular weekly chain store sales data on the economic slate, the market will simply speculate about the political results. It’s our view here that a market rally will follow a Mitt Romney triumph this week.
After the prior day’s austerity decision in Parliament, Greek unions have a general strike scheduled for Tuesday. You can expect it to get nasty if a new round of austerity gets the okay. In fact, the disruptive political coalition should gain support if Greece continues to load its citizens with austerity as it struggles through economic depression. Enough is enough already.
This week’s chain store sales reports will undoubtedly be disrupted by the Hurricane Sandy Frankenstorm which struck through the period. Last week’s data covering the period ending October 27, showed sales only inched higher by 0.5% week-to-week. The year-over-year pace slipped to 2.7%, from 2.9% rate seen the week before. Redbook showed an increase in the yearly pace to 1.8%, up from 1.3% the week before. Sales have hit stall speed after slowing dramatically over the last several months, so we’ll want to keep a close eye on activity as the critical holiday season starts in a few weeks.
Before the market opens Wednesday, the Mortgage Bankers Association will have again reported on mortgage applications. Last week’s report covering the period ending October 26 marked a 4.8% decrease in the MBA’s Market Composite Index. The stall in mortgage applications mostly reflected increases in effective mortgage rates across the mortgage loan spectrum. This week’s data will be inclusive of Hurricane Sandy, and while the MBA adjusts for seasonal impacts, it is typically imperfect in doing so. In fact, every weekly data point should be off its mark due to the storm, and look for skews to October and November economic data because of it as well. Indeed, we speculated last week that Hurricane Sandy could very well act as a catalyst for recession.
The Energy Information Administration will publish its weekly Petroleum Status Report on Wednesday at 10:30 AM ET. The last report covering the period ending October 26 showed petroleum inventory decreased by 2.0 million barrels, though they remained above the upper limit of the average range for this time of year. Total motor gasoline inventory increased by 0.9 million barrels last week, and is in the lower half of the average range for this time of year. Certainly the impact of the hurricane on refinery operations weighed against the effort here, but that is expected to be resolved quickly as there was no reported important damage (only disruption).
At 3:00 PM ET, the Federal Reserve will report on the monthly change in consumer credit. Credit has been expanding since reaching its lowest depths in comparison to income in the summer of 2010. However, more recently its rate of expansion has been more tempered than in earlier phases of recovery. Still, the total level of consumer credit outstanding has been continually growing since reaching those depths. For the month of September, which will be reported on Wednesday, economists see credit expanding by $10.2 billion at the consensus of a range of forecasts stretching from about $7 billion to $15 billion. In August, credit expanded by $18.1 billion. Non-revolving credit expanded by $13.9 billion, likely on the month’s strong vehicle sales but also due to student loans.
Investors will certainly be interested in the latest economic forecasts for the European Union and euro zone, which will be produced by the EU Commission Wednesday. We expect they will again be reduced, though forward periods should continue to reflect the hopeful reasoning of the group as always.
Despite after seeing economic forecasts likely reduced just a day prior, economists reportedly see the European Central Bank (ECB) and the Bank of England (BOE) leaving rates steady through their Thursday monetary policy statements. That said, the latest ECB actions were quite reassuring to markets, and should be reiterated and reinforced.
Just a couple days after the U.S. democratic process, the communists in China will hold their Congress in order to appoint new leadership. Needless to say, markets will be on edge, but disruption would seem unlikely.
New International Trade data will be reported Thursday morning for the month of September. Economists expect the trade gap expanded to $45.4 billion, from $44.2 billion in August. Closer inspection of the trends shows that both export and import growth is near stalling on a year-to-year basis.
Weekly Initial Jobless Claims for the week ending November 3 should show significant disruption caused by Hurricane Sandy. Economists see the claims count at 370K on a seasonally adjusted basis, which would be up from the 363K reported the prior week. Last week’s report showed the four-week moving average for claims declined by 1,500 to 367,250.
The Bloomberg Consumer Comfort Index is up for report at 9:45 AM ET. Last week’s report saw a slight deterioration in the index week-to-week, to -34.7. I’ll have more to say about consumer confidence shortly.
At 10:30 AM ET, the EIA will report on natural gas inventory. In the week ending October 26, net gas in storage increased by 65 Bcf, to a level 259 Bcf more than the 5-year average for this time of year.
At 8:00 PM, St. Louis Federal Reserve Bank President James Bullard addresses a group at the 9th Annual Corporate Finance Conference.
The day starts with news from China, as the nation releases reports on inflation, retail sales and industrial production. This matters to Americans, as activity in China is a barometer of demand in its export markets, including here in America.
OPEC will publish its Monthly Oil Market Report, which post election might offer new meaning. I expect to have more to say about this during the week.
The Import and Export Prices Report will reach the wire in the premarket Friday. Economists see import prices rising by 0.1% in October, following the 1.1% price increase in September. Export and import prices as indicated by this report have not offered issue of late, and so inflation concerns have been quieted by it and other data. I continue to have intense concern about price catalysts developing today that will make living quite difficult tomorrow, but that’s a discussion for another report.
The Reuters/University of Michigan Consumer Sentiment Index will be reported at 9:55 AM. Economists see the index improving to 83.3 in this latest report for November, up from 82.6. I certainly will soon talk about a recent catalyst I think has helped confidence higher of late.
Wholesale Trade data will be reported at 10:00 AM ET for the month of September. Economists see wholesale inventory rising by 0.3% this time around, versus the 0.5% increase reported last month. However, you’ll want to also note the change in wholesale trade sales in relation to the change in inventory for a better read of the situation. Also take note of price change.
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