The Week Ahead June 20, 2010
For the US, this week is FOMC week. The FOMC is unlikely to change either its target rate or "extended period" language. Separately, house sales are likely to reflect the volatility induced by the end of the homebuyers' rebate, illustrating how temporary programs simply shift activity in time rather than boosting it. Manufacturing data is likely to be mixed, with the Richmond Fed index moderating but still robust, and the durable goods orders falling overall but rising net of transportation. The final U. Mich. confidence for Jun and 3rd print for Q1 GDP are also scheduled.
For Canada, CPI is expected to have moderated within the relatively contained range it has plied for several months. Retail sales ex-autos are forecast to have continued to moderate from the Q1 surge.
In Asia, Japan and New Zealand issue major reports. Japan will report its all-industry index, adjusted trade balance and Tokyo CPI. The all-industry index has been volatile in recent months, making it difficult to interpret. The trade balance is expected to have slipped for a 2nd consecutive month after reaching a two year high. And the CPI is forecast to show that deflation continues to moderate. New Zealand's Q1 GDP is forecast to have moderated from the Q4 surge.
As to the Euro Zone, consumer confidence and activity PMIs are all forecast to have fallen. Consumer confidence is being weighed by sovereign debt and government austerity concerns. The services and manufacturing PMI's are expected to have moderated in expansionary territory after having reached multi-year highs in recent months.
FOMC rate decision - no change
No one expects a rate change. We don't believe that the extended period language will be altered, either, given our view that the Fed is at least seven months away from tightening and with the risks being for initial tightening to be shifted even further back. There are simply too many risks, with Europe invoking austerity measures, China tightening, US fiscal policy at least "unloosening" if not outright tightening, and November elections creating even more uncertainty regarding US fiscal policy.
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Housing sales volatility due to Government interference
Existing home sales for May (Tue 10:00) are forecast to have risen 6.5%m/m to 6.15m. A 6.15m annualized rate would constitute a smaller spike than the one in Nov'09, just after the original deadline for the homebuyers' rebate. New home sales for May (Wed 10:00) are expected to have collapsed 18.7%, with the annualized rate falling to 410K and putting the notion of a recovery of sales into question. As to prices, the house price index for Apr (Tue 10:00) is forecast to have risen 0.3%m/m, providing tentative evidence that prices have stabilized and could even begin trending higher. Our own take is that excess inventories are being held off the market by banks and will be only slowly leaked onto the market in such a way to prevent a further collapse of prices.
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Manufacturing picture mixed
The Richmond Fed index for Jun (Tue 10:00) is forecast to have fallen from 26 to 20. Such a move would constitute a significant moderation from the record high 30 posted in April but still be consistent with robust activity. The always-volatile durable goods orders (Thu 08:30) are expected to provide a mixed picture for May. Overall orders are expected to have fallen 1.3%m/m, while net of transportation, the consensus call is for orders to have risen 1.3%.
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The final U. Mich. Confidence index for Jun (Fri 09:55) is expected to have remained unchanged at 75.5. This result would leave confidence recovering at a high since Dec'07, but also near a low since the early-'90s but for the disastrous readings of the past few years.
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The 3rd estimate for Q1 GDP (Fri 08:30) is expected to show growth unchanged at 3.0%, slowing from the 5.6% pace in Q4'09 back toward (and we believe eventually below) trend speed later this year.
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CANADA
CPI for May (Tue 07:00) is forecast to have moderated to 0.2%m/m, allowing the y/y rate to fall from 1.8% to 1.3%. Inflation appears to be stabilizing in the 1.3 to 1.8% range.
Retail sales for Apr (Wed 08:30) are expected to have fallen 0.4%m/m overall but to have risen 0.1% net of auto sales. Sales ex-autos surged in Q1 but appear to be tapering off towards a more sustainable pace (long-term average is 0.4%).
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ASIA
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JAPAN
The all-industry activity index for Apr (Mon 00:30) is forecast to have risen 2.0%m/m. After recovering during most of 2009, the index experienced volatility in Q1'10.
The adjusted merchandise trade balance for May (Wed 19:50) is expected to have moderated to JPY626.8bn. Such a reading would mark the 2nd consecutive moderation since the balance peaked at a 2yr high of JPY767bn in March.
Tokyo CPI ex-fresh food for Jun (Thu 19:30) is forecast to have fallen 1.4%y/y. Such would mark the least-negative reading since Jun'09 and provide greater hope that the deflationary pressure that had gripped Japan since Apr'09 is truly abating.
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NEW ZEALAND
Q1 GDP is forecast to have risen 0.5%q/q, a moderation from the 0.8% rise in Q4 and a bit below the 0.6%q/q long-term average.
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EUROPE
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