THE BASIS POINT

Recap Last Week, Preview Next Week

RECAP JANUARY 9-13 MARKET WEEK

Retail Sales: December Retail Sales estimates were already modest at 0.4%, but the actual was only 0.1% and even worse at -0.2% if you exclude auto sales. And for the week ended January 7, ICSC-Goldman weekly chain store sales were -5.3%. Weaker than originally thought holiday season and slow start to year for consumer spending.

Europe Downgraded. EU Rescue Fund Next?: S&P issued ratings downgrades throughout the Eurozone Friday. This was telegraphed early-December so it wasn’t as shocking as headlines might suggest. The real issue now is whether the EU rescue fund, the European Financial Stability Facility (EFSF), will also be downgraded which would reduce it’s size and efficacy. More on Europe in next week’s preview below.

Jobless Claims Jump: Claims for unemployment insurance jumped 24k to 399k for the week ended January 7 following a down-trend four of the previous five weeks. Now they’re at the highest level since the end of November, but still below 400k, a key threshold. The job market is still weak despite a decent run for claims before last week. Next report Thursday.

PREVIEW JANUARY 17-20 MARKET WEEK

Next week’s economic calendar is busy, plus it’s a huge earnings week. Highlights below with rate impacts.

Will Better Manufacturing Continue?: Two key January U.S. manufacturing reports are due Tuesday and Thursday, both of which have 0 as dividing line between expansion/contraction. Last month, they were both better: Empire State Manufacturing was 9.5, highest since May and second straight monthly gain. Philly Fed was 10.3, highest since April and third straight monthly gain after three months of contraction. January estimates call for almost no change to either index. Rates even.

No Inflation Again: Flat producer (PPI) and consumer (CPI) inflation for December is expected Wednesday and Thursday. November’s annual PPI was 5.7% total and 2.9% excluding food and energy. Annual CPI was 3.4% total and 2.2% excluding food and energy. All November annual (and monthly) figures were flat versus October. Rates even given that there’s little near-term inflation fear.

Homebuilder Confidence Inching Up: January’s homebuilder confidence index is Wednesday. December’s index was 21, the third straight monthly. 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 don’t move much on this report.

Will Home Construction Jump Again?: Construction (aka Housing Starts) and Building Permits for December are due Thursday and both are expected to decline slightly from November. Construction was up 9.3% in November to 685k (seasonally adjusted, annualized). Still below 1.5m needed to keep in line with population growth and scrappage, but highest since April 2010 when homebuyer tax credit boosted production. Excluding that one-time event, construction is highest since October 2008. Here’s the single family vs. multifamily breakdown. Building permits were up 5.7% to 681k, best since March 2010. Rates also won’t move on this report unless is was an upside blowout, then rates would rise.

STAT OF THE WEEK-Existing Home Sales: Not surprising that expectations for Friday’s December Existing Home Sales vary rather widely. Along with the November report, the NAR revised 2007-2010 sales down from 20,629,000 to 17,680,000, meaning 2,949,00 (or 14%) fewer existing homes were sold in those years than previously reported. As for November 2011, existing home sales were 4.42m annualized, up 4% in November and up 12.2% since November 2010. This is the highest mark in 10 months and 34% above mid-2010 low point. Also cancelled deals spiked again: 33% of Realtors reported at least one cancelled contract in November. Same for October, which was up sharply from 18% in September and August, and up from 9% in September 2010. Lots of interesting housing data in this report, but it won’t move rates much.

Europe’s Hot Topics: The only good thing about S&P’s Eurozone downgrades noted above is that it enables Merkel and Sarkozy to create more urgency toward an inevitable EU fiscal union. As for next week, there are many hot topics but the hottest is Greece resuming talks Wednesday with private investors on how those investors will take losses on Greek bonds. Those talks broke down last week. U.S. rates likely to remain low as EU fears remain front of mind and U.S. Treasury and mortgage bonds remain a safe bet.

Earnings Hit Full Stride: There are about 100 companies reporting 4Q earnings this week including key financials like Citigroup, Wells Fargo, Goldman Sachs, Bank of New York, Charles Schwab, Bank of America, Morgan Stanley. We also have big tech names like Google, IBM, Intel, Microsoft and EBay.

RATE & STOCK OUTLOOK

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