This week, the focus will shift to the health of the U.S. consumer.
The major releases this week include reports on consumer credit, retail sales, and consumer sentiment.
Here's your Monday Scouting Report:
- The Taper Is On: The August jobs report was much weaker than expected. However, it was not enough of a disaster to delay the beginning of the taper, or the reduction of the Federal Reserve's monthly purchases of $85 billion worth of bonds.
Here's Morgan Stanley's Vincent Reinhart: "Friday’s employment results create more uncertainty about the prospects for tapering starting at the Sept 18th FOMC meeting, but while it's a closer call, we still expect that Fed officials are becoming confident enough in a sustained turn higher in the economy going forward and dubious enough about the declining benefits of ongoing QE versus rising costs that they will move forward with an announcement of a start to slowing QE. This inclines us to believe that, if they start tapering, it will be a modest amount and accompanied by language emphasizing their flexibility going forward. If they decide to wait for more data confirming a pickup in second half growth at this month's FOMC meeting, that probably just means the start of QE tapering gets pushed out to the October meeting."
- Consumer Credit (Monday): Economists estimate that consumer credit balances expanded by $12.3 billion in July. "A second straight pay-down of revolving debt, combined with an anticipated deceleration in the growth of other installment loans outstanding, probably capped the expansion of consumer credit at $11.1 billion in July, following a $13.8-billion increase in the prior month," said Societe Generale's Brian Jones. "If our projections are on the mark, consumers have taken on an additional $91.0 billion in debt year to date, compared to $79.6 billion over the corresponding period of 2012."
- Job Openings and Labor Turnover Survey (Tuesday): Economists estimate that there were 3.927 million job openings in July.
- Jobless Claims (Thursday): Economists estimate that initial claims climbed to 330,000 from 323,000 last week. "Initial jobless claims likely remained range-bound, with both the weekly print and the four-week moving average holding near pre-recession levels," said Citi's Peter D'Antonio. "Separately, the number of beneficiaries probably edged up following a surprise drop, but the insured rate was unchanged."
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- U.S. Treasury Budget (Thursday): The monthly account of the Federal budget deficit/surplus comes out at 2 p.m. ET.
- Producer Price Index (Friday): Economists estimate that PPI climbed by 0.2%, and excluding food and energy 0.1%. "In August, price pressures started to build,' said Wells Fargo's John Silvia. "Gasoline prices climbed higher, placing upward pressure on the headline number. Furthermore, the prices paid component of the ISM- manufacturing index jumped into positive territory, and half of the surveyed industries reported higher input prices. In addition, capacity utilization has been weakening and ticked down further in July, which places upward pressure on prices. However, a drop in prices reported in the ISM non-manufacturing index indicates that price growth will be subdued. We expect PPI to advance 0.2 percent in August and for core PPI to increase by 0.1 percent."
- Retail Sales (Friday): Economists estimate that retail sales climbed by 0.5% in August. Excluding autos, sales are estimated to have climbed by 0.3%. "The fact that auto sales are back to pre-recession levels bodes well for headline retail sales and suggests consumers are confident in the intermediate term outlook," wrote Deutsche Bank's Brett Ryan and Carl Riccadonna. "Otherwise, they would not be purchasing these big-ticket items. Ex-auto sales should be decent as well. As we learned last week, anecdotes from the Fed’s beige book indicated that consumer spending gains over the past two months reflected strong demand for autos and housing-related goods."
- Consumer Sentiment (Friday): Economists estimate the University of Michigan's measure of sentiment slipped to 82.0 from 82.1 a month ago. "On the plus side,
economic data has been positive, especially with respect to the labor market," said Credit Suisse's Neal Soss. "And the backup in mortgage rates has stabilized for the time being, diminishing a negative factor. On the minus side, news on the government could weigh on sentiment ? in particular, the debate over an attack on Syria. The Obama administration is on a path toward action, but a recent ABC News/Washington Post poll cited that nearly six in ten Americans oppose strikes against Syria. Gasoline prices have been rangebound since the spring and should not be a swing factor, in our view."
September has historically been the worst month for stocks.
But this month, JP Morgan's Tom Lee thinks hedge funds will be the marginal buyer.
"After reaching 0.223 on 8/23/13, hedge fund beta has since been decreasing and is now at 0.159, highlighting hedge funds reduced exposure to equities," wrote Lee. "At its current position, one could look at this bullishly as it suggests that hedge funds will need to add Beta if the market begins to rally."