Financial Markets Summary For The Week of September 1-5
The week of September 1-5 will see a holiday induced four day trading week that will be light on data, but will see the return of heavy volume to the equities market and feature the publication of the August non-farm payrolls report on Friday. The week will kick off with the release of the ISM manufacturing report and the total vehicle sales report, both for August. Wednesday will see the factory orders estimate for July and the Fed beige book for the July –August period. Weekly jobless claims, the ISM non-manufacturing composite and the Q2 estimate of non-farm productivity will be released on Thursday.
Fed Talk
The week ahead will see a number of Fed speakers on the schedule. Monday will see Atlanta Fed President Hoenig speak on inflation and inflationary pressures in the US economy at 08:30 AM EDT on 1 September. Dallas President Fisher will speak on the US economy at 1:40 EDT on 4 September. San Francisco Fed President Janet Yellen will speak twice during the upcoming week. On 4 September she will speak on the US economic outlook at 2:30 EDT. The following day Ms. Yellen will again address the economic outlook at 3:55 EDT. Boston Fed President Rosengren will speak on September 3 at 12:30 EDT topic TBA.
ISM Manufacturing (August) Tuesday 10:00 AM
The Institute for Supply Management's estimate of activity in the industrial sector for the month of August should see a slight decline on the back of modest economic activity at home and abroad. Although, purchasing managers should see a glimmer of hope on the back of what we think will be a very sharp decline in the prices paid component, the shoddy state of new orders and a second straight decline in new export orders should feature what will be a fall back to 49.3 in the headline for the month.
Total Vehicle Sales (August) Tuesday: Throughout The Day
The ongoing adjustment in domestic motor vehicle industry should continue in August when we expect that domestic vehicle sales will arrive at 9.4mln and total vehicle sales will come in at 13.0mln. The combination of lack of demand for the fuel inefficient vehicles still on the market and the substitution of private transportation for mass transport in large metropolitan areas is subtly reshaping the domestic auto market. Within the context of tight credit, a weak labor market and falling home prices the auto industry is poised for further problems throughout the remainder of 2008.
Factory Orders (July) Wednesday 10:00 AM
The solid environment for external demand should underlie a mild factory orders report for July. We anticipate that factor orders will increase 1.0% for the month. The second straight above expectations print in durable goods orders for July and the fifth straight above market expectations posting does give some hope that the spillover of financial stress into the real economy will be limited. The market will focus beyond the headline on shipments of non-defense capital good ex-aircraft that is a forward-looking indicator of growth. We expect to observe a solid 0.6% advance in that category.
Fed Beige Book Wednesday 2:00 PM
The market will be focused on the condition of the consumer and the lingering deadweight that is the housing sector on economic activity midyear. The beige book should report modest economic activity with demand still seeing some of the impact from the fiscal stimulus package that arrived in the second quarter of 2008. What might prove more interesting will be the pricing situation during the report. The previous beige book imparted that there were anecdotal reports of demands for wage increases linked to surging headline prices. Should that gain steam, the markets current rosy outlook on future inflation may be slightly altered.
Initial Jobless Claims (Week ending Aug 30) Thursday 08:30 AM
Initial claims over the past two weeks has surged well above the critical threshold of 400K and the less volatile four week moving average has increased to 442K. The strong move to the upside may partially be a function of legislative changes that have enabled continuing files to be identified and initial filers. This implies that the market should see the headline moderate over the coming weeks. Thus we expect a 435K print for the upcoming week.
ISM Non-Manufacturing Thursday 08:30 AM
The service sector reflects the stress of higher headline costs and mixed prospects in the labor market that have defined the condition of the consumer over the past several months. We expect that the headline for the ISM non-manufacturing activity estimate will modestly ease to 49.3.
Q2 Non-Farm Productivity Thursday 08:30 AM
Amidst a very difficult economic environment over the past year, productivity continues to hold up quite well. Firms that did not over indulge themselves during the expansion have maintained worker output per hour though 2007-08. During energy shocks, one would normally expect to productivity to weaken, but the lagged impact of past investment in technology appears to have provided a cushion for firms to weather the storm. We expect productivity in the second quarter to increase 3.0% primarily on the back of firms reducing payrolls to hedge against further economic downturns ahead.
Non-Farm Payrolls (August) Friday 08:30 AM
The rise in initial jobless claims throughout the sampling period may be a bit ripe due to a policy change in how first time claimants are accounted for. However, the smoothed four-week moving average has moved above the 400K level. The carnage in the goods producing sector, construction and manufacturing will continue. In July, other than the health care, education and hospitality sectors all other major categories of private sector hiring went negative or were flat for the month. We expect the headline to see a net subtraction of -75K for August and the unemployment rate to rise to 5.7% for the month.
Joseph Brusuelas
Chief Economist
Merk Investments
http://www.merkfund.com/
The views in this article were those of Axel Merk as of the newsletter's publication date and may not reflect his views at any time thereafter. These views and opinions should not be construed as investment advice nor considered as an offer to sell or a solicitation of an offer to buy shares of any securities mentioned herein. Mr. Merk is the founder and president of Merk Investments LLC and is the portfolio manager for the Merk Hard Currency Fund. Foreside Fund Services, LLC, distributor.
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