The Week Ahead

We have a week loaded with releases, ending with the Jan Payroll print, Feb/3.

Personal Income and Consumption starts us off and with all eyes of the so-called PCE deflator as the Fed just made a point of targeting this number.  Past years this release packed little market-moving muscle and one reason is that the deflator comes after CPI (The two indexes differ by formula and component. The PCE uses a chain index which accounts for consumer pattern change due to prices; the CPI uses a fixed basket with fixed component weights).

We also have several Dec manufacturing surveys, vehicle and chain store sales for Jan, the Q4 Employment Cost Index (Dept of Labor measure in the growth of wages and benefits) then Dec Factory Orders and Jan Payroll on Friday.

Let’s pause just a moment for the “Manufacturers’ Shipments, Inventories and Orders Report” - so-called Factory Orders. This is not a key FI or FX mkt mover as the Durables component, roughly half of the report, has already been released. Non-durables are then added. Equity investors are usually more interested in this report as it shows trends within industries, something the Durables report does not (instead of just computers for example, it will show component breakdown - monitors, semiconductors, hardware, etc,).

Finally, we have Jan Payroll, part coincident indicator, part leading but prime market mover nevertheless. We have had job creation as a client anchor, meaning that economists would under-estimate related vigor. As a fit, the Dec headline print at 200M, with private sector jobs at 212M,  flattened estimates. Earnings and hours worked were also a tad better, and also through expectations.   Naturally we are not booming; job creation has been moderate. Our view is that it will simply extend the pace, H1. Few are looking for amazing strength on Friday.  Fine.  But if there is disappointment we recommend a pause, and then a strike by the way of any of the earlier recommended strategies.

And one of these strategies of course can be equity related.  Indeed, it is no coincidence that the S&P 500 has soared over 22% since October, a time when it looked to many as if the US was headed for a double dip. As just a very few of us predicted at the time, the US economy was about to get a whole lot better.


Robert Craven