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What to Watch in the Week Ahead: August 15-19

08/15/2011

 

After five extremely volatile trading sessions S&P 500 Index (Fig 1.1) lost 1.7% for the week of August 8. Keep in mind, many had feared the Index would suffer a much deeper decline in response to Standard & Poor's downgrade of U.S. term credit rating after the market close on Friday, August 5. This is not a market where investors should be making major decisions based on extreme intraday volatility. Pulling back on the view is warranted. Last week's 1.7% decline after the downgrade is evidence to that. However, the late-week recovery has not reversed the defensive sentiment for the market. Further price stability is needed. We must remain ever watchful of critical economic data releases and policy directives.

 

These events for the week of August 15-19 may determine whether price stability can be certified:

 

  • Japan - Finance Minister Yoshihiko Noda warned over the weekend further intervention by the Bank of Japan may be needed to halt appreciation in the Japanese yen (Fig 1.2). Further yen appreciation would be problematic for Japanese economic recovery efforts in the wake of the March earthquake.

 

  • Tuesday August 16, German Chancellor Angela Merkel meets with French President Nicolas Sarkozy to outline measures to "improve euro zone crisis management." A midday post meeting joint press conference may impact U.S. markets.

 

  • Robust U.S. manufacturing has been the foundation for the recovery since March 2009. On August 1 , the critical U.S. ISM Manufacturing (Fig 1.3) report came in at 50.9, well below the previous month's 55.3. This week two regional manufacturing reports from New York and Philadelphia will provide insight on whether further manufacturing weakness is emerging:
      • Monday, August 15, 8:30 a.m. - New York (Empire) Manufacturing Survey
      • Thursday, August 18, 10 a.m. - Philadelphia Fed Survey

 

  • Housing continues to bump along the bottom in a continued deleveraging process. Given the Federal Reserve's commitment to low rates until the middle of 2013, I am first looking for a potential refinance boom.
      • Tuesday, August 16, 8:30 a.m. - Housing Starts (Fig 1.4) and Building Permits (Fig 1.5)

      • Wednesday, August 17, 7:00 a.m. - Weekly Mortgage Applications

      • Thursday, August 18,10 a.m. - Existing Home Sales (Fig 1.6)

  • Inflation data - PPI will be released on Wednesday, August 17 (Fig 1.7), and CPI on Thursday, August 18 (Fig 1.8).

 

  • Weekly U.S. labor figures will be released in the Thursday, August 18, initial jobless claims report. Please read last week's blog for my thoughts on the last (August 11) jobless claims release.

 
FIG 1.1 S&P 500® INDEX, WEEK OF 8/8/11 

Source: Bloomberg

FIG 1.2 SPOT JAPANESE YEN, 8/16/10 TO 8/12/11

 

 


Source: Bloomberg

 

FIG 1.3 U.S. ISM MANUFACTURING, 8/31/08 TO 7/31/11

 


Source: Bloomberg

 

Fig 1.4 HOUSING STARTS, 8/31/05 TO 6/30/11

 


Source: Bloomberg

 

Fig 1.5 BUILDING PERMITS, 8/31/05 TO 6/30/11

 

 

 


Source: Bloomberg

 

 

Fig 1.6 EXISTING HOME SALES, 8/31/05 TO 6/30/11

Source: Bloomberg

Fig 1.7 PPI YOY, 8/31/008 TO 6/30/11

 


Source: Bloomberg

 

Fig 1.8 CPI YOY, 8/31/008 TO 6/30/11

 


Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.