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TIB Weekly Newsletter "The stock market
pulse"
$49.95/month Value
September 1st
2008 Edition
Weekly review of
the markets
Last week, looking
at the S&P 500 graph we weren’t sure if we had a bearish flag or a
bullish channel and said the coming week should add some clarity to this
picture…
Monday started off nicely with some good news on
the existing home sales front with a 3.1% increase beating analyst’s
estimates, following a 2.8% reduction last month .
This indicated, although not clearly, that we might have touched bottom on
that front. On the other side we learned that the regional bank Columbian Bank and Trust Company was shut down reminding us of
the financial sector precarious situation. So this news was the catalyst the
markets needed to close down significantly making our figure a little
clearer, ie possibly a bearish flag. Not good…
Tuesday was the biggest day in terms of economic
news. First, the new home sales increased by 2.4% but we expected better.
Consumer confidence index came out stronger than expected at 56,9 vs 53,0 and surveys to
consumers showed there was an increase in the intentions to buy new cars, new
homes and new appliances. The FOMC minutes didn’t impact the market at all
with a lack of interesting data. On a day where history was made in terms of
the low Volumes we still had significant volatility ,
the result being a Doji candle, confirming the uncertainty in the markets these
days…
Wednesday oil prices rose for a third consecutive
day while durable goods orders increased by 1,3%
beating expectations. Oil prices are up mainly because of Gustav, a hurricane
in the Gulf of Mexico. We expected the storm would hit
Louisiana on Monday. Thus speculations
were all based on the weather at this time which seem
to have been ignored by the market since it concentrated on the increase in
durable goods orders. Volumes remained very low but all indexes closed higher
causing double bottoms on all three…
Thursday Gustav continued to impact oil prices… but
the GDP was the center of attention. We expected 2,7%
but got a 3,3%! Not only did we beat the estimate but it’s a very good improvement
over the last trimester which was only 0,9%. It
seems the economy is not in such bad shape after all. The weakness of the
dollar stimulated exports which counterbalanced the weakness of interior
demand. We saw a positive open to the trading day and we never looked back.
Thursday showed a technical breakout and it was the first time in a long time
that we had such a day based on fundamental data.
Friday, Dell announced results that didn’t meet the
estimates, personal revenues came out negative at 0,7% and consumer expenses
met expectations with a 0,2% increase. Oil price was very volatile opening up
2,7% to later lose as much. The Volume was again
very low but it still was enough to erase most of the gains from the day before . Even if the news weren’t particularly good on
this day it still doesn’t explain this sudden change of heart. We are tempted
to think Gustav “blew” J the renewed confidence the
market seemed to have acquired lately. I guess it will now depend on how bad
it hits and how much damage it inflicted to the oil infrastructures in the Gulf
of Mexico…
This Week, on
the economic front, three news will be
worth watching for: The two
ISM surveys and the employment data.(see below for
details). Lately fundamental data seems to be making a come back so a few good
news could provoke a nice little hurricane of our own but on the bullish side…
Speaking of Hurricanes Gustav will likely be the wild card this week. If the infrastructure
ate hit hard we could see a quick rise in the price of oil which could derail
this potential positive turn of event.
Technically the situation remains very obscure since last
week the breakouts happened very late in our figures making them less
reliable plus volumes have been very low lately. So for now the reversal we
had Friday could only be a classic pull back but the situation remains positive
unless Gustav creates havoc. I won’t include grapgics
this week since not much need to be added at this time
Now let's take a closer look at the upcoming weeks in
terms of economic news and how each
one can impact the market:
( Soon to be for Investor Rules members only ) Not a
member yet? Just go to
http://www.trading-and-investing-for-beginners.com/gold-membership.html
Economic calendar
(Reports I consider will impact the market the most with definitions and
expectations)
Monday
is a Labor Day
Tuesday
September 2nd
Construction Spending
10:00 AM
Consensus is -0.3%
Definition
The dollar value of new construction activity on residential,
non-residential, and public projects. Data are available in nominal and real
(inflation-adjusted) dollars.
Why Do Investors
Care?
Construction spending has a direct bearing on stocks, bonds and commodities
because it is a part of the economy that is affected by interest rates,
business cash flow and even federal fiscal policy. In a more specific sense,
trends in the construction data carry valuable clues for the stocks of home
builders and large-scale construction contractors. Commodity prices such as
lumber are also very sensitive to housing industry trends.
Businesses only put money into the construction of new factories or offices
when they are confident that demand is strong enough to justify the
expansion. The same goes for individuals making the investment in a home.
A portion of construction spending is related to government projects such as
education buildings as well a highways and streets. While investors are more
concerned with private construction spending, the government projects put
money in the hands of laborers who then have more money to spend on goods and
services.
That's why construction spending is a good indicator of the economy's
momentum.
ISM Mfg Index
10 :00 ET
Consensus 49.9
Definition
The Institute for Supply Management surveys more than 300 manufacturing
firms on employment, production, new orders, supplier deliveries, and inventories.
A composite diffusion index of national manufacturing conditions is
constructed, where readings above (below) 50 percent indicate an expanding
(contracting) factory sector. Export orders, import orders, backlog orders
and prices paid for raw and unfinished materials are also measured, but these
are not included in the overall index. (Institute for Supply Management)
Why Do Investors Care?
Investors need to keep their fingers on the pulse of the economy because
it dictates how various types of investments will perform. By tracking economic
data such as the ISM manufacturing index, investors will know what the
economic backdrop is for the various markets. The stock market likes to see
healthy economic growth because that translates to higher corporate profits.
The bond market prefers less rapid growth and is extremely sensitive to
whether the economy is growing too quickly and causing potential inflationary
pressures.
The ISM manufacturing data give a detailed look at the manufacturing sector,
how busy it is and where things are headed. Since the manufacturing sector is
a major source of cyclical variability in the economy, this report has a big
influence on the markets. More than one of the ISM sub-indexes provides
insight on commodity prices and clues regarding the potential for developing
inflation. The Federal Reserve keeps a close watch on this report that helps
it to determine the direction of interest rates when inflation signals are
flashing in these data. As a result, the bond market is highly sensitive to
this report.
Wednesday September 3rd
Motor
Vehicle Sales
Consensus: 9,400M
Definition
Unit sales of domestically produced cars and light duty trucks (including
sport utility vehicles and mini-vans). Individual manufacturers report
usually report sales on the first business day of the month. Motor vehicle
sales are good indicators of trends in consumer spending.
Why Do Investors Care?
Since motor vehicle sales are an important element of consumer spending,
market players watch this closely to get a handle on the direction of the
economy. The pattern of consumption spending is one of the foremost
influences on stock and bond markets. Strong economic growth translates to
healthy corporate profits and higher stock prices. The bond market focus is
on whether economic growth goes overboard and leads to inflation. Ideally,
the economy walks that fine line between strong growth and excessive
(inflationary) growth. This balance was achieved through much of the
nineties. For this reason alone, investors in the stock and bond markets
enjoyed huge gains during the bull market of the 1990s.
Retail sales growth did slow down in tandem with the equity market in 2000
and 2001, although motor vehicle sales moderated to a lesser extent. A low
interest rate environment through 2005 curtailed the decline in motor vehicle
sales. Granted, since automakers offered many incentives to boost sales in
the past several years, their profits have suffered.
In a more specific sense, auto and truck sales show market conditions for
auto makers and the slew of auto-related companies. These figures can
influence particular stock prices and provide insight to investment
opportunities in this industry. Given that most consumers borrow money to buy
cars or trucks, sales also reflect confidence in current and future economic
conditions.
MBA
Purchase Applications
07:00ET
Actual 314.0
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes.
The purchase applications index measures applications at mortgage lenders.
This is a leading indicator for single-family home sales and housing
construction.
Why Do Investors Care?
This provides a gauge of not only the demand for housing,
but economic momentum. People have to be feeling pretty comfortable and
confident in their own financial position to buy a house. Furthermore, this
narrow piece of data has a powerful multiplier effect through the economy,
and therefore across the markets and your investments. By tracking economic
data such as the Mortgage Bankers Association purchase applications,
investors can gain specific investment ideas as well as broad guidance for
managing a portfolio.
Each time the construction of a new home begins, it translates to more
construction jobs, and income which will be pumped back into the economy.
Once a home is sold, it generates revenues for the home builder and the
realtor. It brings a myriad of consumption opportunities for the buyer.
Refrigerators, washers, dryers and furniture are just a few items new home
buyers might purchase. The economic "ripple effect" can be substantial
especially when you think a hundred thousand new households around the
country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial
markets, housing construction has a direct bearing on stocks, bonds and
commodities. In a more specific sense, trends in the MBA purchase
applications index carries valuable clues for the stocks of home builders,
mortgage lenders and home furnishings companies.
Challenger Job-Cut Report
7:30ET
Definition
A monthly report on the number of announced corporate layoffs. It is not
adjusted for seasonal variations. The report indicates trends in the labor
market.
Why Do Investors
Care?
These statistics on layoffs help us gauge the strength of the job market.
Fewer layoffs suggests more people have jobs. Every
job comes with an income, which gives a household spending power. Spending
greases the wheels of the economy and keeps it growing, so the stronger the
job market, the healthier the economy.
There's a downside to it, though, which is relevant these days. When few
people are looking for jobs, businesses can have a tough time finding new
workers. They might have to pay overtime to current staff, use higher wages
to lure people from other jobs, and in general spend more on labor costs
because of a shortage of workers. This leads to wage inflation, which is bad
news for the stock and bond markets.
The Challenger report breaks down the layoffs into industries, which provides
insight to trends that likely will effect stock
prices in specific industries. Note that not all announced layoffs
culminate in actual layoffs.
ICSC-UBS
Store Sales
07:45 ET
Definition
This weekly measure of comparable store sales at major retail chains,
published by the International Council of Shopping Centers, is related to the
general merchandise portion of retail sales. It accounts for roughly 10
percent of total retail sales..
Why Do Investors Care?
Consumer spending accounts for more than two-thirds of the
economy, so if you know what consumers are up to, you'll have a pretty good
handle on where the economy is headed. Needless to say, that's a big
advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and
bond markets. For stocks, strong economic growth translates to healthy
corporate profits and higher stock prices. For bonds, the focus is whether
economic growth goes overboard and leads to inflation. Ideally, the economy
walks that fine line between strong growth and excessive (inflationary)
growth. This balance was achieved through much of the nineties. For this
reason alone, investors in the stock and bond markets enjoyed huge gains
during the bull market of the 1990s. Retail sales growth did slow down in
tandem with the equity market in 2000 and 2001, but then rebounded at a
healthy pace between 2003 and 2005.
The ICSC-UBS index is one of the most timely
indicators of consumer spending, since it is reported every week. It gets
extra attention around the holiday season when retailers make most of their
profits. It is also a useful indicator when special factors can cause
economic activity to momentarily slide. For instance, it was widely watched
in the aftermath of Hurricanes Katrina and Rita which hit New
Orleans and the Gulf
Coast in 2005.
ADP Employment Report
8:15 ET
Definition
The ADP national employment report is computed from a subset of ADP records
that in the last six months of 2006, represented approximately 364,000 U.S.
business clients and approximately 22 million U.S. employees working in all
private industrial sectors. The data are collected for pay periods that can
be interpolated to include the week of the 12th of each month, and processed
with statistical methodologies similar to those used by the U.S. Bureau of
Labor Statistics to compute employment from its monthly survey of
establishments. ADP contracted with Macroeconomic Advisors to compute a
monthly report that would ultimately help to predict monthly nonfarm payrolls from the Bureau of Labor Statistic's
employment situation. The ADP report only covers private (excluding
government) payrolls at this time. (Automatic Data Processing
(ADP)/Macroeconomic Advisers)
Why Do Investors
Care?
Market players have become accustomed to the excitement on employment Friday
and realize the rich detail of the monthly employment situation can help set
the tone for the entire month. While economists have certainly improved their
nonfarm payroll forecasts over the years, it is not
unusual to see surprises on employment Friday. To that end, the new ADP
national employment report can help improve the payroll forecast by providing
information in advance of the employment report.
The employment statistics also provide insight on wage trends, and wage
inflation is high on the list of enemies for the Federal Reserve. Fed officials
constantly monitor this data watching for even the smallest signs of
potential inflationary pressures, even when economic conditions are soggy. If
inflation is under control, it is easier for the Fed to maintain a more
accommodative monetary policy. If inflation is a problem, the Fed is limited
in providing economic stimulus. Initially, the ADP national employment report
will not have wage information, but their goal is provide wage information,
along with industry and regional information as well.
Nonetheless, by tracking jobs, investors can sense the degree of tightness in
the job market. If wage inflation threatens, it's a good bet that interest
rates will rise; bond and stock prices will fall. No doubt that the only
investors in a good mood will be the ones who watched the employment report
and adjusted their portfolios to anticipate these events. In contrast, when
job growth is slow or negative, then interest rates are likely to decline -
boosting up bond and stock prices in the process.
Redbook
8:55 ET
Actual 1.3 %
Definition
A weekly measure of sales at chain stores, discounters, and department
stores. It is a less consistent indicator of retail sales than the weekly
ICSC index. It is also calculated differently than other indicators. For
instance, figures for the first week of the month are compared with the
average for the entire previous month. When two weeks are available, then
these are compared with the average for the previous month, and so on. It
might be more useful to compare year-over-year figures since these are indeed
compared to the comparable week a year ago. This index is correlated with the
general merchandise portion of retail sales covering only about 10 percent of
total retail sales.
Why Do Investors Care?
Consumer spending accounts for two-thirds of the economy,
so if you know what consumers are up to, you'll have a pretty good handle on
where the economy is headed. Needless to say, that's a big advantage for
investors.
The pattern in consumer spending is often the foremost influence on stock and
bond markets. For stocks, strong economic growth translates to healthy
corporate profits and higher stock prices. For bonds, the focus is whether
economic growth goes overboard and leads to inflation. Ideally, the economy
walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties. For this reason
alone, investors in the stock and bond markets enjoyed huge gains during the
bull market of the 1990s. Retail sales growth did slow down in tandem with
the equity market in 2000 and 2001, but then rebounded at a healthy pace
between 2003 and 2005.
The Redbook is one of the more timely indicators of consumer spending, since
it is reported every week. It gets extra attention around the holiday season
when retailers make most of their profits. It is also a useful indicator when
special factors can cause economic activity to momentarily slide. For
instance, it was widely watched in the aftermath of Hurricanes Katrina and
Rita which hit New Orleans and
the Gulf Coast
in 2005.
Bank of Canada Announcement
![[Bullet]](0901tibnews_files/image002.png) 9:00 ET
Definition
The Bank of Canada Governing Council meets and makes an announcement about
every six weeks to indicate the near-term direction of monetary policy. The
announcement conveys to the financial markets and investors if and what
change in policy might be.
Why Do Investors
Care?
The Bank of Canada Governing Council determines interest
rate policy for Canada.
The Council is composed of the Governor, Senior Deputy Governor, and four
Deputy Governors. The Council meets about every six weeks on a predetermined
schedule. The announcement of any change in monetary policy follows, usually
on a Tuesday morning. Decisions are derived by means of a consensus, the same
as they are for the European Central Bank. Unlike the Federal Reserve, Bank
of Japan, the Bank of England or the European Central Bank, the Bank of
Canada has an established inflation target range of between one and three
percent but is focused on the mid-point of two percent. Because interest rate
decisions affect market interest rates to varying degrees, the Bank has
created its own core consumer price index, which eliminates eight volatile
products.
As in the United States,
market participants speculate about the possibility of an interest rate
changes. If the outcome is different from expectations, the impact on
Canadian markets can be dramatic and far-reaching. The interest rate set by
the Bank of Canada, serves as a benchmark for all other rates. A change in
the rate translates directly through to all other interest rates. The level
of interest rates affects the economy. Higher interest rates tend to slow
economic activity; lower interest rates stimulate economic activity. Either
way, interest rates influence the sales environment. In the consumer sector,
few homes or cars will be purchased when interest rates rise. Furthermore,
interest rate costs are a significant factor for many businesses,
particularly for companies with high debt loads or who have to finance high
inventory levels. This interest cost has a direct impact on corporate
profits. The bottom line is that higher interest rates are bearish for the
stock market, while lower interest rates are bullish.
Factory Orders
10:00 ET
Consensus 0.8%
Definition
Factory orders represent the dollar level of new orders for both durable and
nondurable goods. This report gives more complete information than the
advance durable goods report which is released one or two weeks earlier in
the month.
Why Do Investors
Care?
Investors want to keep their fingers on the pulse of the economy because it
usually dictates how various types of investments will perform. The stock
market likes to see healthy economic growth because that translates to higher
corporate profits. The bond market prefers more moderate growth which is less
likely to cause inflationary pressures. By tracking economic data like
factory orders, investors will know what the economic backdrop is for these
markets and their portfolios.
The orders data show how busy factories will be in coming months as
manufacturers work to fill those orders. This report provides insight to the
demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition
to new orders, analysts monitor unfilled orders, an indicator of the backlog
in production. Shipments reveal current sales. Inventories give a handle on
the strength of current and future production. All in all, this report tells
investors what to expect from the manufacturing sector, a major component of
the economy and therefore a major influence on their investments.
EIA Petroleum Status Report
10:35 ET
Definition
The Energy Information
Administration (EIA) provides weekly information on petroleum inventories in
the U.S., whether produced here or abroad. The level of inventories helps
determine prices for petroleum products.
Why Do Investors Care?
Petroleum product prices are
determined by supply and demand - just like any other good and service.
During periods of strong economic growth, one would expect demand to be
robust. If inventories are low, this will lead to increases in crude oil prices
- or price increases for a wide variety of petroleum products such as
gasoline or heating oil. If inventories are high and rising in a period of
strong demand, prices may not need to increase at all, or as much. During a
period of sluggish economic activity, demand for crude oil may not be as
strong. If inventories are rising, this may push down oil prices.
Crude oil is an important commodity in the global market. Prices fluctuate
depending on supply and demand conditions in the world. Since oil is such an
important part of the economy, it can also help determine the direction of
inflation. In the U.S. consumer prices have moderated whenever oil prices
have fallen, but have accelerated when oil prices have risen.
Beige Book
2:00 ET
Consensus is
Definition
This book is produced roughly two weeks before the monetary policy meetings
of the Federal Open Market Committee. On each occasion, a different Fed
district bank compiles anecdotal evidence on economic conditions from each of
the 12 Federal Reserve districts.
Why Do Investors
Care?
This report on economic conditions is used at FOMC meetings, where the
Fed sets interest rate policy. These meetings occur roughly every six weeks
and are the single most influential event for the markets. Market
participants speculate for weeks in advance about the possibility of an
interest rate change that could be announced upon the end of these meetings.
If the outcome is different from expectations, the impact on the markets can
be dramatic and far-reaching.
If the Beige Book portrays an overheating economy or inflationary
pressures, the Fed may be more inclined to raise interest rates in order to
moderate the economic pace. Conversely, if the Beige Book portrays economic
difficulties or recessionary conditions, the Fed may see the need to lower
interest rates in order to stimulate activity.
Since the Beige Book is released two weeks before each FOMC meeting,
investors can see for themselves at least one of the many indicators which
Fed officials will use to determine interest rate policy, and can position
their portfolios accordingly.
Thursday September
4th
Chain Store Sales
Definition
Monthly sales volumes from individual department, chain, discount, and
apparel stores are usually reported on the first Thursday of each month.
Chain store sales correspond with roughly 10 percent of retail sales. Chain
store sales are an indicator of retail sales and consumer spending trends.
Why Do Investors
Care?
Consumer spending accounts for more than two-thirds of the economy, so if you
know what consumers are up to, you'll have a pretty good handle on where the
economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and
bond markets. For stocks, strong economic growth translates to healthy
corporate profits and higher stock prices. For bonds, the focus is whether
economic growth goes overboard and leads to inflation. Ideally, the economy
walks that fine line between strong growth and excessive (inflationary)
growth. This balance was achieved through much of the nineties. For this
reason alone, investors in the stock and bond markets enjoyed huge gains
during the bull market of the 1990s. Spending at major retail chains did slow
down in tandem with the equity market in 2000 and 2001 and again in 2003, but
strengthened in 2004 and 2005.
Chain store sales not only give you a sense of the big picture, but also the
trends among individual retailers and different store categories. Perhaps the
discount chains such as Target and Wal-Mart are doing well, but the high-end
department stores such as Tiffany's are lagging. Maybe apparel specialty
retailers are showing exceptional growth. These trends from the monthly chain
store data can help you spot specific investment opportunities, without
having to wait for the quarterly or annual reports.
Just a few words of caution. Sales are reported as a change from the same
month, a year ago. It is important to know how strong sales actually were a
year ago to make sense of this year's sales. In addition, sales are usually
reported for "comparable stores" in case of company mergers.
Monster Employment Index
06:00ET
Definition
Monster collects job postings from 1,500 web sites (including Monster.com)
and creates an index of job availability, akin to The Conference Board's help
wanted index. The difference between the two is that one collects help wanted
advertising from newspapers and the other collects from online posting. The
Monster index is not seasonally adjusted.
Why Do Investors Care?
In addition to providing insight on the general strength of the economy, this
report gives a sense of how many jobs employers are trying to fill. If that
number is relatively high, it could mean there is a shortage of available
workers and companies may have to offer higher wages to attract them. This
leads to wage inflation, which is bad news for the stock and bond markets.
Federal Reserve officials are always worried about the potential for
inflationary pressures.
When the employment index measuring job availability is falling, this bodes
well for the bond market because it implies a drop in labor demand and
perhaps an economic downturn. While the Fed worries about inflation, they
also are concerned about rising unemployment. A rising jobless rate can mean
a more accommodative monetary policy.
The equity market prefers to see healthy economic growth and thus would
rather see increases in the employment index. An increase in job demand means
that consumers will have more money to spend on goods and services - and this
ultimately affects profits.
BOE Announcement
07:00ET
Definition
The Bank of England Monetary Policy Committee consists of nine members. The
Committee meets monthly for two days, usually during the first week in the
month in order to determine the near-term direction of monetary policy.
Changes in monetary policy are announced immediately after the meetings, but
no details are available until the minutes are published two weeks later.
Why Do Investors
Care?
The Bank of England determines interest rate policy at their monetary policy
meetings. The MPC is composed of the Governor, two Deputy Governors, two Bank
Executive Directors, and four experts appointed by the Chancellor of the
Exchequer. The MPC meets monthly (usually the first Wednesday and Thursday of
the month) to determine interest rate policy. Unlike the Federal Reserve,
Bank of Japan, or the European Central Bank, the Bank of England has an
established fixed inflation target of 2 percent. The Bank uses the consumer
price index to measure inflation.
As in the United States,
market participants speculate about the possibility of an interest rate
change at these meetings. If the outcome is different from expectations, the
impact on British markets -- and to some extent in Europe
-- can be dramatic and far-reaching. The interest rate set by the Bank of England,
serves as a benchmark for all other rates. A change in the rate translates
directly through to all other interest rates from gilts (fixed interest
government securities named after the paper on which they were once printed)
to mortgage loans.
The level of interest rates affects the economy. Higher interest rates tend
to slow economic activity; lower interest rates stimulate economic activity.
Either way, interest rates influence the sales environment. In the consumer
sector, few homes or cars will be purchased when interest rates rise.
Furthermore, interest rate costs are a significant factor for many
businesses, particularly for companies with high debt loads or who have to
finance high inventory levels. This interest cost has a direct impact on corporate
profits. The bottom line is that higher interest rates are bearish for the
stock market, while lower interest rates are bullish.
ECB Announcement
07:45ET
Definition
The European Central Bank Governing Council consists of 18 members. The
Committee meets twice a month. The first monthly meeting of the month is
devoted to monetary policy. Changes in monetary policy if any are announced
immediately after the meetings. A press conference is held about 45 minutes
after the meeting ends. A statement is read concerning their action -- or
lack of it -- followed by a question and answer period. The ECB does not
publish any minutes for its meetings.
Why Do Investors Care?
The European Central Bank determines interest rate policy at their Governing
Council meetings. The Council is composed of the six members of the Executive
Council and 12 presidents of member central banks (Bank of France, Bundesbank, etc). The Governing Council meets twice
monthly (usually the first and third Thursdays of the month). Monetary policy
issues are generally discussed only at the first meeting of the month. The
European Central Bank has an established inflation ceiling of 2 percent. The ECB's measure of inflation is the harmonized index of
consumer prices (HICP). Decisions are reached by consensus. No vote is taken.
As in the United States,
European market participants speculate about the possibility of an interest
rate change at these meetings. If the outcome is different from expectations,
the impact on European markets can be dramatic and far-reaching. The interest
rates set by the ECB serves as a benchmark for all other rates in the eurozone.
The level of interest rates affects the economy. Higher interest rates tend
to slow economic activity; lower interest rates stimulate economic activity.
Either way, interest rates influence the sales environment. In the consumer
sector, few homes or cars will be purchased when interest rates rise. Furthermore,
interest rate costs are a significant factor for many businesses,
particularly for companies with high debt loads or who have to finance high
inventory levels. This interest cost has a direct impact on corporate
profits. The bottom line is that higher interest rates are bearish for the
stock market, while lower interest rates are bullish.
Jobless Claims
08:30ET ET
Consensus 420K
Definition
New unemployment claims are
compiled weekly to show the number of individuals who filed for unemployment
insurance for the first time. An increasing (decreasing) trend suggests a
deteriorating (improving) labor market. The four-week
moving average of new claims smoothes out weekly volatility.
Why Do Investors Care?
Jobless claims are an easy way
to gauge the strength of the job market. The fewer people filing for
unemployment benefits, the more have jobs, and that tells investors a great
deal about the economy. Nearly every job comes with an income that gives a
household spending power. Spending greases the wheels of the economy and
keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it,
though. Unemployment claims, and therefore the number of job seekers, can
fall to such a low level that businesses have a tough time finding new
workers. They might have to pay overtime wages to current staff, use higher
wages to lure people from other jobs, and in general spend more on labor
costs because of a shortage of workers. This leads to wage inflation, which
is bad news for the stock and bond markets. Federal Reserve officials are
always on the look out for inflationary pressures.
By tracking the number of
jobless claims, investors can gain a sense of how tight, or how loose, the
job market is. If wage inflation threatens, it's a good bet that interest
rates will rise, bond and stock prices will fall, and the only investors in a
good mood will be the ones who tracked jobless claims and adjusted their
portfolios to anticipate these events.
Just remember, the lower the
number of unemployment claims, the stronger the job market, and vice versa.
Productivity and Costs
8:30ET
Consensus Non Farm
3.3%
Consensus Unit
Labor Cost -0.3%
Definition
Productivity measures the growth of labor efficiency in producing the
economy's goods and services. Unit labor costs reflect the labor costs of
producing each unit of output. Both are followed as indicators of future
inflationary trends.
Why Do Investors
Care?
Productivity growth is critical because it allows for higher wages and faster
economic growth without inflationary consequences. This is a hot topic these
days with the economy so strong, the labor market so tight, yet inflation so
well-behaved.
Some Wall Street experts assert that dramatic productivity advances are
allowing the economy to sustain a much faster pace of growth than previously
thought possible. Fed chairman Greenspan has expressed skepticism about those
assertions, however. In either case, the productivity data give investors
important clues on how stocks and bonds can be expected to perform, and the
market reactions to these releases show the true importance of productivity
growth.
ISM Non-Mfg
Survey
10:00ET
Consensus: 50.0
Definition
The non-manufacturing ISM surveys nearly 400 firms from 60 sectors across the
United States, including agriculture, mining, construction, transportation,
communications, wholesale trade and retail trade. Beginning with the January
2008 report, a new composite index was made public and is now the headline
number. It is considered an indicator of the overall economic conditions for
the non-manufacturing sector and consists of four equally weighted indexes:
business activity, new orders, employment, and supplier deliveries.
Why Do
Investors Care?
Investors need to keep their fingers on the pulse of the economy because it
dictates how various types of investments will perform. By tracking economic
data like the ISM non-manufacturing survey's business activity index,
investors will know what the economic backdrop is for the various markets.
The stock market likes to see healthy economic growth because that translates
to higher corporate profits. The bond market prefers less rapid growth and is
extremely sensitive to whether the economy is growing too quickly-and causing
potential inflationary pressures.
The ISM manufacturing index has a long history - dating to the 1940s. This
new report (beginning in 1998) was originally not adjusted for seasonal
variation, but the ISM has since established seasonally adjusted figures for
several of the ISM non-manufacturing components (including the business
activity index) since 2002 and a composite index starting in 2008. As a
result, the ISM non-manufacturing survey has garnered more attention and is
almost as widely followed by financial market participants as its
manufacturing cousin.
EIA Natural
Gas Report
10:35 ET
Consensus
Definition
The Energy Information Administration (EIA) provides weekly information on
natural gas stocks in underground storage for the U.S.,
and three regions of the country. The level of inventories
help determine prices for natural gas products.
Why Do Investors
Care?
Natural gas product prices are determined by supply and demand - just like
any other good and service. During periods of strong economic growth, one
would expect demand to be robust. If inventories are low, this will lead to
increases in natural gas. If inventories are high and rising in a period of
strong demand, prices may not need to increase at all, or as much. During a
period of sluggish economic activity, demand for natural gas may not be as
strong. If inventories are rising, this may push down oil prices.
Friday September 5th
Employment Situation
08:30 ET
Consensus NonFarm Payroll -75000
Consensus Average Hourly Earnings 0.3%
Consensus Unemployment Rate – Level 5.8%
Consensus Average Workweek – Level 33.7hrs
Definition
The employment situation is a set of labor market indicators. The
unemployment rate measures the number of unemployed as a percentage of the
labor force. Nonfarm payroll employment counts the
number of paid employees working part-time or full-time in the nation's
business and government establishments. The average workweek reflects the
number of hours worked in the nonfarm sector.
Average hourly earnings reveal the basic hourly rate for major industries as
indicated in nonfarm payrolls. (Bureau of Labor Statistics,
U.S. Department of
Labor)
Why Do Investors Care?
If ever there was an economic report that can move the markets, this is it!
The anticipation on Wall Street each month is palpable, the reactions are
dramatic, and the information for investors is invaluable. By digging just a
little deeper than the headline unemployment rate, investors can take more
strategic control of their portfolio and even take advantage of unique
investment opportunities that often arise in the days surrounding this
report.
The employment data give the most comprehensive report on how many people are
looking for jobs, how many have them, what they're getting paid and how many
hours they are working. These numbers are the best way to gauge the current
state as well as the future direction of the economy. Nonfarm
payrolls are categorized by sectors. This sector data can go a long way in
helping investors determine in which economic sectors they intend to invest.
The employment statistics also provide insight on wage trends, and wage
inflation is high on the list of enemies for the Federal Reserve. Fed
officials constantly monitor this data watching for even the smallest signs
of potential inflationary pressures, even when economic conditions are soggy.
If inflation is under control, it is easier for the Fed to maintain a more
accommodative monetary policy. If inflation is a problem, the Fed is limited
in providing economic stimulus.
By tracking the jobs data, investors can sense the degree of tightness in the
job market. If wage inflation threatens, it's a good bet that interest rates
will rise; bond and stock prices will fall. No doubt that the only investors
in a good mood will be the ones who watched the employment report and
adjusted their portfolios to anticipate these events. In contrast, when job
growth is slow or negative, then interest rates are likely to decline -
boosting up bond and stock prices in the process.
That's it for the economic calendar this week and for this
outlook on what we can expect in the markets this week so use it wisely, and
prosper… :-)
Yours truly,
Eric LeRiche
www.trading-and-investing-for-beginners.com
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