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Notes on the Week Ahead

November 26, 2012

The biggest immediate political question for global financial markets remains that of the U.S. fiscal cliff.† The good news is that both sides sound conciliatory in public statements.† The bad news is that neither side can be seen by their supporters as giving in too easily or too soon.†
-David Kelly, chief global strategist, J.P. Morgan Funds

Not Quite Deal-Time

As 2012 enters its final month, U.S. economic numbers appear to be on an upswing, a trend which should be sustained in the week ahead.

Retail sales reports from the Thanksgiving weekend appear to be relatively good although the early opening of some stores on Thanksgiving itself appears to have detracted from sales the day after.† With regard to monthly numbers, the Case-Shiller Indices, New Home Sales and Pending Home Sales indices, due out on Tuesday, Wednesday and Thursday respectively, will likely add to a recent string of improving numbers in this crucial sector of the U.S. economy.† Durable Goods Orders, due out on Tuesday, could also post positive headline readings due to a further surge in bookings for new aircraft.† However, ex-Transportation numbers will likely look softer and could mesh with a weaker reading from the Chicago Purchasing Managers on Friday.††

The generally upbeat tenor of these reports should be reinforced by gains in Consumer Confidence on Tuesday, a decline in Unemployment Claims on Thursday (as the effects of Hurricane Sandy wear off) and a strong upward revision to Q3 GDP, also on Thursday.

Elsewhere around the financial world the themes seem about as recycled as Thanksgiving turkey.† European finance ministers will be meeting this week to approve releasing the next tranche of loans to Greece.† As has been the case at all stages of this crisis, the cost of not lending Greece money appears too high for the Europeans to refuse to do so.† However, loans in return for additional austerity in an already disastrous economy is simply the wrong policy.† The simplest, cheapest solution to Greeceís debt nightmare is for European governments to grant (not loan) Greece enough money in the short run to enable it to get its economy back to economic growth in return for long-term reforms aimed increasing tax revenue and cutting government spending.†

Similarly, Japan, now once again in recession, is hobbled by excessive debt and political stalemate. Japanís economic problems should be highlighted by a raft of data on Friday morning on manufacturing, industrial production and employment.† However, the prescription of even more monetary easing, (being proposed by opposition leader Shinzo Abe over the objections of the Bank of Japan), is very ill-suited to reviving Japanís economy.

The biggest immediate political question for global financial markets remains that of the U.S. fiscal cliff.† The good news is that both sides sound conciliatory in public statements.† The bad news is that neither side can be seen by their supporters as giving in too easily or too soon.† While, a deal before Christmas is still on the cards, until then, markets will still be in the dark on the impact of the deal on both tax rates and the economy -† an uncertainty which is restraining gains in economic activity, stock prices and interest rates.† However, investors should still recognize that, once the fiscal fog clears, all three could move higher, suggesting that this probably remains a time to be a little over-weight risk assets.

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Tuesday,† November 27th

Case-Shiller Housing Price Index†††††††††††† Forecast††††††††† Last

20-City Average, SA, %ch, m/m†††††††††††††††† † 0.4††††††††††††††† 0.5

20-City Average, SA, %ch, y/y† †††††††††††††††† ††3.0†††††††††††††††† 1.8

Durable Goods Orders†††††††††††††††††††††††††††††† Forecast†††††††† Last

† Total, %ch†††††††††††††††††††††††††††††††††††††††††††††† ††† 1.9%†††††††††††† 9.9%

† Ex. Transportation, %ch †††††††††††††††††††††††† ††- 1.3%†††††††††††† 2.0%

Consumer Confidence††††††††††† † ††††††††††††††† ††Forecast††††††††† Last

Index Level†††††††††††††††††††††††††††††††††††††††††††††† † 75.5†††††††††††††††† 72.2

Wednesday,† November 28th

New Home Sales†††††††††††††††††††††††††††††††††††††† Forecast†††††††† Last

Sales, mils, ann rate††††††††††††††††††††††††††††††††† 0.413††††††††††††† 0.389

Inventories, mils††††††††††††††††††††††††††††††††††††† 0.144††††††††††††† 0.145

Thursday,† November 29th

Jobless Claims††††††††††††††††††††† ††††† ††††††††††† †Forecast††††††† † Last

Initial Claims, 000ís††††††††††††††††††††††††††††††† †††† 391†††††††††††††††† 410

Continued Claims, 000ís†††††††††††††††††††††††† † 3,238††††††††††††† 3,337

Pending Home Sales†††††††††††††††††††††††††††††††† Forecast†††††††† Last

† Index Level††††††††††††††††††††††††††††††††††††††††††††† 102.8†††††††††††††† 99.5

Q3 GDP††††††††††††††††††††††††††††††††††† ††††††††††††† ††† 2nd Est.†††††††††† 1st Est.

††Real GDP, %ch, ann rate††††††† ††††††††††††††††† † 2.8%††††††††††††††† 2.0%

Friday,† November 30th

Personal Income and Spending†††††††††††††† † Forecast†††††† Last

Personal Income, %ch††††††††††††††††††††††††††† †† 0.1%†††††††††††††† 0.4%

Consumer Spending, %ch††††††††††††††††††††† †† 0.3%†††††††††††††† 0.8%

Chicago ISM Survey††††††††††††††††††††††††††††††††† Forecast†††††††† Last

† Index Level††††††††††††††††††††††††††††††††††††††††††††† † 49.3††††††††††††† 49.9