A quick rundown of what I expect from the indicators.
Empire Manufacturing: I expect continued strength as manufacturing continues to carry the US economy thus far. I expect possible weakness next month or April as the inventory replenishment cannot go on forever unless there is a strong resumption of end demand (very weak of this so far).
Housing Market Index: Last month, the housing market indicators started giving whiffs of a double dip. While I am leaning towards a disappointment in this indicator due to homebuilders worrying about the expiration of the tax credit in April, there are substantial risks to the upside as builders show some optimism towards the spring selling season, which would be helped by the tax credit. Regardless, any uptick would be noise in my view as there are “clear and present danger” circumstances in the housing market (MBS program ending, Tax credit expiration, not enough improvement in labor conditions, shadow inventories)
MBA Purchase Applications: Thus far this indicator has underperformed even my low expectations. There is still no strong indication that sales will pick up in February or March. While I do expect an eventual pick up in applications, the pick up might be quite muted as future demand is beginning to get exhausted. If this is indeed the case, we might see a double dip earlier than I though.
Housing Starts: Starts have been flat over the prior 4 months. I expect more of the same as seasonality plays a factor, though there is room for upside surprise as Building Permits” have indeed been increasing over the last 4 months also. For a significant move up in starts, we would need to see a number in the 600K range. I think we’ll have a number in the high 500Ks.
Industrial Production: Business equipment has been carrying this indicator higher while consumer goods have been relatively flat. I expect continued gains as ISM manufacturing index for January was very good with increasing improvement in breadth.
PPI: I expect a continued increase as the great reflation experiment has only resulted in higher commodity prices as investors protect themselves against inflationary conditions in the future.
CPI: I expect this to come in marginally positive on a MoM basis. While the reflation experiment has increased commodity costs, I continue to believe that firms have no pricing power and passing costs over to the consumer will result in lower sales. This phenomenon will eventually bring about problems with regards to margins getting squeezed as companies have no choice but to swallow these higher “backdoor” costs.
Leading Indicators: This indicator has been notorious in my view in that it has been warped by gov’t intrusion. While it has shown improvement in breadth, most of the gains continue to be due to increasing money supply and a very steep yield curve. Stock prices have also had a part in the gains. While a steep yield curve usually indicates a recovery is in the works, I believe it is being influenced more by the large supply of gov’t debt that is being issued to pay for all these programs to prop up the economy. Increases in the money supply, while a bullish indication, are not making their way to the real economy as banks continue to stash all the cash to improve their balance sheets. Because January had one of the more pronounced reductions in the risk trade, we may be in for a flat reading which would surprise the consensus of a 0.5% reading to the downside as stock price gains are no more, and the yield curve flattened a bit.
Philly Fed Index: I expect another strong reading if Factory/Durable Goods Orders provide a accurate glimpse of the future. Manufacturing continues to carry the economy, but this is not sustainable if there is no increase in end demand.
Case Schiller Index: I believe that we will see a negative reading as home values have begun to resume their downward trajectory. This will probably bring out renewed talk of a double dip. While it may also bring about renewed pleas for another tax credit for housing, I think the stimulus train has run out of political gas. I don’t think there will be a renewed tax credit and will pave the way for a double dip in the Fall and winter…perhaps even sooner!
Durable Goods Orders: I’ll be keeping an eye out for possible weakness in this indicator as signs that the inventory restocking phase is nearing an end. While I don’t think it will show up this month, I believe that we’ll begin seeing it come the March or April report.
Consumer Confidence: Will Consumer Confidence fall more inline with what other consumer confidence indicators such as the ABC and Gallup Poll? I think we may be in for a downside surprise here.
New Home Sales: I expect to see a flat to slightly positive reading as January really didn’t result in a bounce from the plunge in December. Mortgage applications continue to show weakness due in part to seasonality and perhaps ominously due to exhausted future demand pulled forward from the initial housing credit.
Well, that’s about it. Have a great week.
Upcoming Key Macro Events
- Target for UK Triggering Article 50 March 29, 2017
- Senate Intelligence Committee Public Hearing March 30, 2017
- (TENT) Tarullo, Fed Governor set to resign April 5, 2017
- NATO foreign ministers meet April 5, 2017
- (TENT) Trump meets with Jinping at Mar-a-Lago April 6, 2017 Mar-a-Lago
- Confirmation vote for Neil Gorsuch April 7, 2017
- Eurogroup Summit (Greek bailout resolved?) April 7, 2017
- Target date to have AHCA passed the Senate April 7, 2017 at 5:00 pm – 6:00 pm
- Tillerson meets G7 foreign ministers in Italy April 10, 2017 Italy
- Target date for approval of ACA from both Houses April 14, 2017
- US: Budget resolution technically due. April 15, 2017
- (TENT): G7 Foreign Ministers meet in Tuscany April 15, 2017 Tuscany
- (TENT): Duterte visits Moscow (April or May) April 15, 2017
- Turkish Constitutional Referendum (Erdogan enhanced powers) April 16, 2017
- French Presidential election (1st round) April 23, 2017
- Spending bill deadline April 28, 2017 Republicans and Democrats agreed in late 2015 on a budget deal to increase some spending for two years to fund the government and avoid a shutdown and debt default. However Congress still needs to come up with a spending bill within those parameters by April 28
- Treasury Semiannual report on on International Economic and Exchange Rate Policies April 28, 2017
- EU summit to discuss Brexit April 29, 2017
- FOMC meets on interest rate policy May 2, 2017 – May 3, 2017
- French presidential election (run off) May 6, 2017
- (TENT): G7 finance ministers meet in Puglia May 15, 2017 Puglia
- OPEC meeting in Vienna May 25, 2017 Vienna
- 43rd G7 Summit in Sicily, Italy May 25, 2017
- (TENT) Article 50 negotiations to begin June 1, 2017 Mrs. May’s letter will pave the way for Britain to leave by March 2019
- D-day anniversary June 4, 2017 at 3:30 pm – 4:30 pm 1944
- FOMC meets on interest rate policy* June 13, 2017 – June 14, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT): Deadline for Greek debt payment (IMF review) July 1, 2017
- TENT Thaad deployed in South Korea?? July 1, 2017 South Korea??
- G20 Summit in Germany July 7, 2017 – July 8, 2017 Do Trump and Putin meet?
- FOMC meets on interest rate policy July 25, 2017 – July 26, 2017
- (TENT) Xiangshan military forum August 31, 2017
- (TENT) Catalan Referendum for independence August 31, 2017
- FOMC meets on interest rate policy* September 19, 2017 – September 20, 2017 Summary of Economic Projections and a press conference by the Chair.
- German Bundestag elections September 24, 2017
- FOMC meets on interest rate policy October 31, 2017 – November 1, 2017
- China's Singles Day November 11, 2017
- FOMC meets on interest rate policy* December 12, 2017 – December 13, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT) Italian National Elections January 1, 2018
- Chair Yellen's term ends (if not reappointed) February 3, 2018
- Fed: Yellen's term expires February 3, 2018
- Fed: Lockhart (Centrist to slighly dovish) retires? February 28, 2018
- Fed: Fischer's term expires June 12, 2018
- Austrian general election due by Sept 2018 September 1, 2018