THE BASIS POINT

MARKET HIGHLIGHTS: Recap Jan 30-Feb 10, Preview Feb 13-17

I didn’t post my Recap/Preview last week, so doubling up on Recap section this week to catch up.

Big week U.S. economic week but Greece (last section below) likely to overshadow U.S. reports.

Next up is WeeklyBasis, short and sweet outlook on next week’s rate and stock markets.

RECAP JANUARY 30-FEBRUARY 10 MARKET WEEK

Inflation Not A Threat: December’s annual personal consumption expenditures index (PCE) figures were 2.4% total and 1.8% excluding food and energy. Monthlies were also flat at 0.1% total and 0.2% excluding food and energy. Same story with flat or declining monthly and annual PPI and CPI, both previewed in next week’s data below. PCE is Fed’s preferred consumer inflation measure, and the flat figures justify the Fed’s easy rate policy.

Home Prices Falling, But Less So If Distressed Sales Excluded: S&P Case Shiller reported that prices of existing single family homes across 20 major U.S. metro areas fell 1.3% in November (third straight down month after a five-month ’20-City’ streak of modest rises) and fell 3.7% since November 2010. Separately CoreLogic reported that single family home prices fell 1.4% in December (fifth straight down month) and fell 4.7% in 2011 (fifth straight down year). Excluding distressed sales, the CoreLogic numbers look better: up 0.2% for December and down 0.9% for 2011. And finally, the Federal Housing Finance Agency’s (FHFA) home price report was up 1% for November and down 1.8% since November 2010. But FHFA’s report isn’t as widely followed because it’s only for homes with Fannie/Freddie mortgages, so doesn’t include as broad a sample as Case Shiller and CoreLogic reports.

Manufacturing Growth Streak: January’s Institute for Supply Management (ISM) Manufacturing Index was 54.1. December ISM was 53.9, up from 52.7 in November, with 50 as dividing line between between expansion and contraction. This was the 30th month of growth. Slim growth but a resilient streak. From here, either Consumer Spending will increase or manufacturing will decrease. The last GDP report showed significant growth in inventories. If Consumer Spending is flat and Government Spending is down and the Investment part of GDP is down because inventories are too large, then 1Q2012 GDP will be flat or even negative.

ADP Jobs Report Was OK: Payroll provider ADP’s January jobs report showed 170,000 new payrolls. An OK number but at the low end of expectations following December’s ADP blowout of 325,000 private jobs created versus of 178,000 and November’s 204,000 figure. These are private sector jobs only: +170,000 private jobs is not an indication of economic growth since it barely keeps pace with population growth.

Upside Surprise BLS Jobs Report, But There’s Fine Print: Rates rose the day January’s BLS report showed the economy added 243k non-farm payrolls in January, the most since April 2011 and beating expectations of 135-145k. December was revised from 200k to 203k new jobs created and November was revised from 100k to 157k. This figure doesn’t count actual people, it counts how many companies opened or closed, then uses that data to estimate the number of jobs gained or lost. Unemployment dropped to 8.3% from 8.5% according to a different part of the jobs report called the ‘Household Survey’ which counts people. This is the lowest since February 2009. Further reference: Jobs Chart: Jan 2008-Present and Inside January’s Jobs Report.

Job Market Optimism: Jobless Claims Dropping Consistently: For the week ended February 4, claims for unemployment insurance fell 15k to 358k. Besides a couple upward blips in the past three months, claims are holding well below 400k, a threshold under which the job market is considered to be improving. Also the 4-week moving average of 366,250 is the lowest since April 2008. This is a good trend, but this report doesn’t count jobs added—see BLS section above for that. Jobless Claims are reported every Thursday.

PREVIEW FEBRUARY 13-17 MARKET WEEK

Next week’s economic calendar is busy plus Greece’s debt deal will be front and center. Highlights below with rate impacts.

Autos May Drive Retail Sales Higher Again: January retail sales are Tuesday and estimates call for 0.8-1.2% growth. Not much but would be an improvement over December’s 0.1%, which was even worse at -0.2% if you exclude auto sales. That said, auto sales may bolster January’s number again since Autodata reported auto sales hit 14.1m annualized in January, the highest since cash-for-clunkers in August 2009 and second highest since May 2008. More from Bloomberg. Rates neutral unless it’s a blowout upside surprise.

Estimates Say Manufacturing Streak Continues: Two key February U.S. manufacturing reports look like they may continue their consistent (but modest) up-trend, and both have 0 as dividing line between expansion/contraction. Estimates call for Wednesday’s Empire State Manufacturing index to be 15, following January’s 13.48, which was the highest since May 2011 and third straight monthly gain. Estimates call for Thursday’s Philly Fed index to be 10, following January’s 7.3, which was down from a from a revised 6.8 in December (was 10.3). But even with Philly Fed’s revision down for December, the January figure still marked a fourth straight monthly gain. Rates neutral unless inflation figures embedded in these reports spike.

Producer & Consumer Inflation Likely Flat: January’s producer (PPI) and consumer (CPI) inflation reports are due Thursday and Friday, and estimates for monthly figures are flat: 0.3% total and 0.1% ex-Food/Energy for PPI, and 0.3% total and 0.2% ex-Food/Energy for CPI. December’s annual PPI was 4.8% total and 3.0% excluding food and energy. Annual CPI was 3.0% total and 2.2% excluding food and energy. All December annual (and monthly) figures were flat or down vs. November. There’s little near-term inflation fear which keeps rates low for now.

Homebuilder Confidence May Improve Again: Wednesday’s National Association of Homebuilder’s confidence index is likely to show a flat or slightly higher number for February. In January, the homebuilder confidence index was 25, the fourth straight monthly gain and highest since June 2007. But still a long shot from 50+ mark that signals a healthy market—hasn’t hit that level since April 2006. Here’s how it looks 1985-Present. Rates even on this data, but it’s important for long-term housing sentiment.

Home Construction Estimates Tough To Call: Estimates for January’s Housing Starts (aka new construction) range from 645k-670k and Building Permits range from 650k-675k. Here’s the December recap: Starts were down 4.1% to 657k (seasonally adjusted, annualized). Still below 1.5m needed to keep in line with population growth and scrappage, but Single Family Starts were up 4.4% to 470k, the highest in 2011 and since April 2010 when homebuyer tax credit boosted production. The more volatile Multi-Family Starts were down 13% to 187k. Building Permits were barely up: 0.1% to 679k, but still holding to highest levels since March 2010. This is another important housing sentiment indicator, but won’t have big rate impacts next week.

Earnings Highlights: Here are next week’s earnings names that give us a feel for the consumer: Avon Products, Fossil, Zipcar, Goodyear Tire, Zynga, Weight Watchers, Comcast, CBS, Dr. Pepper Snapple, Abercrombie and Fitch, GM, JM Smucker, Molson Coors, Hyatt Hotels, PG&E, Applied Materials, Baidu, Campbell Soup, Heinz

Greece Debt Deal Reaction Unpredictable: Headlines and trading this week will focus on Greece. Athens is once again burning as citizens protest an austerity package approved tonight (BI, NYT) that includes 22% cuts to minimum wage, immediate layoffs for up to 15,000 state workers, and pension cuts. These austerity conditions are required for Greece to secure 130b euro ($171b) more in EU/IMF bailout funds. Greece’s has 14.5b euro in bond payments due March 20. Bailout funds are also predicated on Greece finalizing months-long negotiations with private bond investors whereby investors exchange outstanding bonds for new ones with coupons as low as 3.6-3.75% and taking 50-70% losses in the process. If most private investors don’t agree, it could trigger credit default swaps (CDS) on these bonds, causing European bank liquidity issues, which are really global banking issues. Forex.com chief currency strategist Brian Dolan explains the definition of a default that would trigger CDS payments. This will cause lots of market indecision this week because Greek Finance Minister Evangelos Venizelos said Greece must make a formal debt swap offer to private investors by Friday. U.S. rates are likely to hold or drop given this Eurozone uncertainty.

RATE & STOCK OUTLOOK

Don’t miss WeeklyBasis, short and sweet outlook on next week’s rate and stock markets.