Mercado de dívida pública (Morgan Stanley)
Enviado: 21/2/2005 14:29(chamo a atenção para o facto de o mercado de dívida pública americano já ter descontado mais três subidas consecutivas de 25 pp cada). Se a dívida das empresas (e as acções) também já descontaram ou não, só os próximos dias o dirão.
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United States: Review and Preview
Ted Wieseman/David Greenlaw (New York)
The Treasury market experienced its first week of significant across-the-board losses of the year over the past week after being walloped by a one-two punch. First there was the slightly hawkish message from Fed Chairman Greenspan, who indicated that while he maintains a sanguine outlook (too sanguine, in our view) for inflation over the next two years, he sees some upside risks. And second, we saw a huge and broadly based upside surprise in the core PPI that suggested the Fed Chairman’s worries may be materializing earlier and more significantly than he expected. A continued backdrop of better than expected growth data also added to the market’s negative tone – with upside surprises in ex-auto retail sales, housing starts, manufacturing output, regional manufacturing surveys, and jobless claims – as did the Fed Chairman’s relatively mild, but nevertheless clear, warning about the frothy current levels of longer-term interest rates and credit spreads and general valuations of risky assets.
By week-end, the adjustments caused by the Fed Chairman and the economic data left benchmark Treasury yields up in double digit bp amounts, the curve a bit steeper, and the futures market fully priced for 25 bp rate hikes at each of the next three FOMC meetings – and with a slight risk of a more aggressive 50 bp move in the near term. After the upside core PPI surprise, all attention will now be focused on Wednesday’s CPI report in the upcoming holiday-shortened week. While we expect a relatively benign outcome to keep the Fed on a “measured” path for now, an upside surprise anywhere close to the magnitude of the PPI shocker would certainly open the door to a more aggressive near-term Fed response.
Benchmark Treasury yields rose 10 to 16 bp over the past week, and the curve steepened. The short end had come into the week largely already priced for continued rate hikes at the next few FOMC meetings, so losses there were relatively contained, but intermediate-term issues were forced to adjust a bit more after the Fed Chairman provided no hint of any near-term pause in hiking rates that some investors had hoped for, while the longer end suffered from the Fed Chairman’s warning that valuation levels appeared to represent a “conundrum” that might be just a “short-term aberration.” Anecdotal reports indicated that the Chairman’s words sent Japanese investors (who own nearly a quarter of the Treasury market) rushing for their English to Japanese dictionaries to find out just exactly what Greenspan was trying to say, and ultimately Asian investors appeared to take the Chairman’s warning most to heart – even as many domestic investors tried to fight the resulting steepening trend by holding onto or adding to flattening positions that have, until recently, been extremely profitable this year.
On the week, 2’s-5’s, 2’s-10’s, and 2’-30’s all ended 6 bp steeper, with the 2-year yield up 10 bp, to 3.43%, and the 5-year, 10-year, and long bond yields all up 16 bp, to 3.85%, 4.26%, and 4.65%, respectively. The 3-year yield was unchanged on the curve, with its yield up 13 bp, to 3.61%. Following Greenspan’s remarks and the PPI surprise, near-term futures market pricing moved to fully price in 25 bp rate hikes at the upcoming three FOMC meetings (March 22, May 3, and June 29-30), with the risks tilted slightly towards the possibility of a 50 bp move at some point. The rate on the April fed funds contract rose 0.5 bp, to 2.77%; the rate on the June contract 3.5 bp, to 3.04%; and the rate on the July contract 9 bp, to 3.255%. Eurodollar futures still show pricing falling off a cliff after June, but the market did move at least slightly in the direction of acknowledging more upside risks to the second half. The June to December 2005 eurodollar spread widened 4.5 bp, to 47.5 bp (the high since last October), with the June contract ending at 3.405% (up from 3.315% a week prior) and the December contract ending at 3.885% (up from 3.745%). And the Dec 05 to Dec 06 spread widened 1.5 bp, to 34 bp, with the December 2006 contract ending at 4.225% (up from 4.07%).
The prepared text of Greenspan’s testimony to Congress was pretty much in line with our expectations. The main takeaway was that the Fed is not looking to send any strong signals at this point, implying a continuation of the gradual rate hiking campaign over the near term. In fact, the Chairman noted that the tightening to date “has significantly raised measures of the real federal funds rate, but by most measures, it remains fairly low.” To the extent that the Chairman provided a slight tilt to this middle-of-the-road message of “measured” rate hikes to continue, he tilted slightly to the hawkish side. In particular, while forecasting stable inflation, he mentioned three potential upside risks – slowing productivity growth, the pass-through effect of a weaker dollar, and high energy prices. However, he certainly did not sound overly alarmed about inflation risk. In fact, the FOMC forecast for the core PCE price index is +1.5% to +1.75% for both 2005 and 2006. This compares with the latest yr/yr reading of +1.5% and our own forecast of +2.1% in 2005 and +2.3% in 2006. Clearly, if our forecast for a continued gradual drift higher in core inflation is on the mark, Greenspan’s mild inflation fears (at this point) would likely become more pronounced and potentially prompt a rethinking of the Fed’s approach. Looking at the economy, the Chairman painted a favorable picture, indicating that “the economy seems to have entered 2005 expanding at a reasonably good pace.” The FOMC looks for +3.75% to +4% GDP growth in 2005, moderating to +3.5% in 2006. The FOMC's expectations are very close to our own in 2005 but are a good deal lower for 2006 (our forecast is +3.9% for 2005 and +4.3% in 2006).
Economic data released over the past week continued the recent run of strong numbers on growth while also providing worrying signs on the inflation front. The consumer and housing markets appear to be holding up quite well early in 2005. Ex-auto retail sales in January posted a surprisingly large 0.6% gain in January, pointing to real consumer spending growth in Q1 of about 3.5% – which would be an impressive showing after the nearly 5% annualized surge in the second half of 2004. Meanwhile, the housing market remains on fire, to the point that persistent excessively low rates may be tipping the market to speculative excesses. We had thought that the bad weather in much of the country in January would at least temporarily slow homebuilding, even with mortgage rates hovering at just about 5 1/2%, but starts jumped to a 20-year high anyway, despite the weather’s apparently hurting activity in parts of the country. Unsold inventories of new homes were already at a five-year high in December and are likely to rise further after the huge starts number – unless sales similarly surprise on the upside. The strength in underlying consumer spending and residential investment suggests that domestic activity is holding up better than we initially expected in Q1 after the solid 4.3% rise in real final domestic demand in Q4, pointing to some potential upside to our initial +3.3% Q1 GDP forecast. With some sizable adjustments expected to the advance Q4 number, however (we estimate an upward boost to +3.8% from +3.1%), we will wait until these revisions are published on Friday before resetting our Q1 forecast.
After some disappointing recent results in the employment report, manufacturing data released the past week were also better than expected. Aside from a slowdown in the motor vehicle sector, which has been struggling with excessive inventories for some time, factory output was surprisingly robust in January, and early regional surveys point to further improvement in February. Though results on the headline sentiment gauges were mixed, the underlying details of both the Empire State and Philly Fed manufacturing surveys pointed to a modest acceleration in overall factory sector activity in February. On an ISM-comparable weighted composite basis, the Empire State rose to 57.6 from 57.0, while the Philly Fed increased to 56.1 from 54.8. This improvement was also reflected in the latest Morgan Stanley Business Conditions Index survey of our equity analysts, which rose 4 points to 59. As a result, we look for the national ISM to rise a half point in February to 57.0.
Meanwhile, the jobless claims data were much better than expected for a third straight week, suggesting the possibility of significant underlying improvement in labor market conditions. Initial claims in the week of February 12 – which is the reference week for the February employment report – dipped to 302,000, and the 4-week average fell to 311,750 (both the lows since late 2000). Combined with a likely weather-related rebound in certain categories that seem to have been depressed in January (construction in particular) by the flooding in California and storms in the Midwest, our preliminary estimate for February nonfarm payrolls is +225,000, which would be the best gain since October, when a recovery from hurricane disruptions significantly boosted job growth.
At the same time that growth numbers have been surprising on the upside, the inflation numbers over the past week looked increasingly worrisome. Given the fairly mild anxiety expressed by Fed Chairman Greenspan about such risks in his Congressional testimony, we believe that the upside in the PPI report in particular, but also in underlying import prices (with prices for imported consumer and capital goods continuing to steadily move to multi-year highs on a year/year basis) make the upcoming CPI report a crucial indicator. If there is any indication of a pass-through of these developments to the consumer level, it could lead to an eventual acceleration in the pace of monetary policy tightening. We continue to look for relatively tame +0.2% gains on both the headline and the core CPI this week and believe that the FOMC can stay measured. Still, the risks on the policy front are turning increasingly one-sided, as it becomes clear that the inflation environment has undergone a dramatic shift in a relatively short period. An upside surprise of anywhere near the magnitude of that seen in the core PPI could certainly put the possibility of a 50 bp hike at the March FOMC meeting on the table and would almost certainly lead to some hawkish changes in the Fed’s official rhetoric.
The key releases the past week were retail sales, housing starts, industrial production, and PPI:
* Retail sales fell 0.3% in January, dragged down by a 3.3% drop in auto dealers’ receipts, which was in line with the previously reported decline in unit sales. But excluding autos, sales gained a larger than expected 0.6%. Redemption of holiday gift cards appeared to provide a solid boost to clothing (+1.8%) and general merchandise (+0.9%) results, and a surprising jump in gas station sales (+1.8%) despite flat prices added to the upside. Meanwhile, food store sales (+0.3%) did not appear to have been significantly hit by the shift of the Super Bowl into February. Even with the fall-off in auto sales in early 2005, the strength in ex-auto results points to a 3.5% gain in real consumption in Q1, which would be an impressive result after the 5% surge in the second half of 2004.
* Housing starts posted a surprising 4.7% gain in January on top of an upwardly revised 14.3% surge in December, to reach a 20-year high of 2.159 million. The key single-family category jumped 2.7% to a new all-time high of 1.760 million, while starts of multi-family units soared 14% to 399,000. We had thought that bad weather would lead to at least a temporary pullback this month. The most amazing part of the report was that there was apparently a significant weather impact in parts of the country hit by blizzards – with the Northeast (-24%) and Midwest (-13%) seeing sharp drops – but this was more that offset by a huge rise in the South (+19%), the largest region by far for new home construction.
* Industrial production was unchanged in January, but all of the softness was attributable to a 3.0% decline in utility output. The key manufacturing gauge rose 0.4% despite a sharp fall in motor vehicle output (-1.9%) as producers slashed assemblies late in the month to try to start getting inventories under control. Excluding motor vehicles, manufacturing production surged 0.7%, led by high tech output (+1.5%, the strongest rise in eight months), chemicals (+1.0%), machinery (+1.7%), and paper (+1.7%). The overall capacity utilization rate dipped 0.1 pp to 79.0%, while manufacturing utilization rose 0.3 pp to 78.0%, the high since December 2000 and within a couple points of the long-term average.
* The producer price index rose 0.3% in January, restrained by declines in food (-0.2%) and energy (-1.0%). The core, however, surged 0.8%, lifting the annual rate to +2.7%, the high since 1995. Only a fraction of the core spike could be explained by unusual movements in volatile categories like tobacco and autos. Excluding these components, we estimate that the core would still have jumped 0.5%, with broadly based gains across various consumer and capital goods items, including alcoholic beverages, women’s apparel, drugs, tires, electronics, and agricultural, construction, and oil and gas drilling machinery. News at earlier stages of production was mixed. The core intermediate jumped 0.8%, but the core crude fell 2.5% on a pullback in steel scrap quotes.
Key focus in the upcoming week will be on Wednesday’s CPI report. Other data due out include consumer confidence Tuesday, durable goods Thursday, and revised GDP and existing home sales Friday:
* We forecast a 104.0 reading for the Conference Board’s consumer confidence index in February. The Michigan and ABC surveys point to little change in sentiment during February. So, we look for the Conference Board gauge to hold near the 103.4 reading seen in January.
* We expect both the headline and core CPI to rise 0.2% in January. Gasoline prices edged up a bit in January – but not by enough to have any meaningful impact on the headline. So, we look for a modest rebound in the overall CPI on the heels of the unusual decline seen in December (that has since been revised to a flat reading). Meanwhile, the core is expected to match the result posted in each of the past three months. The new seasonal factors removed the slight downside risk that we had seen previously – our unrounded estimate for the core is now +0.21%. The main restraining factor this month is an expected unchanged result for the motor vehicle category following some above-trend readings in recent months. Finally, the year/year reading for the core is expected to hold at +2.2%.
* We look for January durable goods orders to fall 1.0%. In recent years, there has been a tendency for orders to slip in the first and/or middle month of the quarter and then skyrocket in the final month. This pattern points to some slippage in January. Moreover, as foreshadowed by the ISM survey, the expiration of the investment tax incentive is expected to have at least a modest negative impact on bookings for capital equipment in early-2005. And a pullback in the motor vehicle category following two very strong months is also likely to help restrain overall durable goods orders this month. The key core category – nondefense capital goods excluding aircraft – is expected to be down 1.5%. However, since the underlying fundamentals remain relatively favorable, we suspect that the slippage in order activity will turn out to be short-lived.
* An upside surprise in the latest round of nonauto retail inventory data should reinforce positive contributions from net exports and construction, pushing our estimate for the revision to Q4 GDP all the way up to +3.8% (versus the originally reported figure of +3.1%).
* We forecast January existing home sales of 6.50 million units annualized. The resale figures from the NAR are tallied at time of closing. So, the severe weather – blizzards in the East and heavy rains and flooding in California – that hit much of the nation in January probably had more impact on floor traffic than on the sales numbers. Still, we look for a further dip (-2.8%) in existing home sales to a pace that is slightly below the 2004 average.
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United States: Review and Preview
Ted Wieseman/David Greenlaw (New York)
The Treasury market experienced its first week of significant across-the-board losses of the year over the past week after being walloped by a one-two punch. First there was the slightly hawkish message from Fed Chairman Greenspan, who indicated that while he maintains a sanguine outlook (too sanguine, in our view) for inflation over the next two years, he sees some upside risks. And second, we saw a huge and broadly based upside surprise in the core PPI that suggested the Fed Chairman’s worries may be materializing earlier and more significantly than he expected. A continued backdrop of better than expected growth data also added to the market’s negative tone – with upside surprises in ex-auto retail sales, housing starts, manufacturing output, regional manufacturing surveys, and jobless claims – as did the Fed Chairman’s relatively mild, but nevertheless clear, warning about the frothy current levels of longer-term interest rates and credit spreads and general valuations of risky assets.
By week-end, the adjustments caused by the Fed Chairman and the economic data left benchmark Treasury yields up in double digit bp amounts, the curve a bit steeper, and the futures market fully priced for 25 bp rate hikes at each of the next three FOMC meetings – and with a slight risk of a more aggressive 50 bp move in the near term. After the upside core PPI surprise, all attention will now be focused on Wednesday’s CPI report in the upcoming holiday-shortened week. While we expect a relatively benign outcome to keep the Fed on a “measured” path for now, an upside surprise anywhere close to the magnitude of the PPI shocker would certainly open the door to a more aggressive near-term Fed response.
Benchmark Treasury yields rose 10 to 16 bp over the past week, and the curve steepened. The short end had come into the week largely already priced for continued rate hikes at the next few FOMC meetings, so losses there were relatively contained, but intermediate-term issues were forced to adjust a bit more after the Fed Chairman provided no hint of any near-term pause in hiking rates that some investors had hoped for, while the longer end suffered from the Fed Chairman’s warning that valuation levels appeared to represent a “conundrum” that might be just a “short-term aberration.” Anecdotal reports indicated that the Chairman’s words sent Japanese investors (who own nearly a quarter of the Treasury market) rushing for their English to Japanese dictionaries to find out just exactly what Greenspan was trying to say, and ultimately Asian investors appeared to take the Chairman’s warning most to heart – even as many domestic investors tried to fight the resulting steepening trend by holding onto or adding to flattening positions that have, until recently, been extremely profitable this year.
On the week, 2’s-5’s, 2’s-10’s, and 2’-30’s all ended 6 bp steeper, with the 2-year yield up 10 bp, to 3.43%, and the 5-year, 10-year, and long bond yields all up 16 bp, to 3.85%, 4.26%, and 4.65%, respectively. The 3-year yield was unchanged on the curve, with its yield up 13 bp, to 3.61%. Following Greenspan’s remarks and the PPI surprise, near-term futures market pricing moved to fully price in 25 bp rate hikes at the upcoming three FOMC meetings (March 22, May 3, and June 29-30), with the risks tilted slightly towards the possibility of a 50 bp move at some point. The rate on the April fed funds contract rose 0.5 bp, to 2.77%; the rate on the June contract 3.5 bp, to 3.04%; and the rate on the July contract 9 bp, to 3.255%. Eurodollar futures still show pricing falling off a cliff after June, but the market did move at least slightly in the direction of acknowledging more upside risks to the second half. The June to December 2005 eurodollar spread widened 4.5 bp, to 47.5 bp (the high since last October), with the June contract ending at 3.405% (up from 3.315% a week prior) and the December contract ending at 3.885% (up from 3.745%). And the Dec 05 to Dec 06 spread widened 1.5 bp, to 34 bp, with the December 2006 contract ending at 4.225% (up from 4.07%).
The prepared text of Greenspan’s testimony to Congress was pretty much in line with our expectations. The main takeaway was that the Fed is not looking to send any strong signals at this point, implying a continuation of the gradual rate hiking campaign over the near term. In fact, the Chairman noted that the tightening to date “has significantly raised measures of the real federal funds rate, but by most measures, it remains fairly low.” To the extent that the Chairman provided a slight tilt to this middle-of-the-road message of “measured” rate hikes to continue, he tilted slightly to the hawkish side. In particular, while forecasting stable inflation, he mentioned three potential upside risks – slowing productivity growth, the pass-through effect of a weaker dollar, and high energy prices. However, he certainly did not sound overly alarmed about inflation risk. In fact, the FOMC forecast for the core PCE price index is +1.5% to +1.75% for both 2005 and 2006. This compares with the latest yr/yr reading of +1.5% and our own forecast of +2.1% in 2005 and +2.3% in 2006. Clearly, if our forecast for a continued gradual drift higher in core inflation is on the mark, Greenspan’s mild inflation fears (at this point) would likely become more pronounced and potentially prompt a rethinking of the Fed’s approach. Looking at the economy, the Chairman painted a favorable picture, indicating that “the economy seems to have entered 2005 expanding at a reasonably good pace.” The FOMC looks for +3.75% to +4% GDP growth in 2005, moderating to +3.5% in 2006. The FOMC's expectations are very close to our own in 2005 but are a good deal lower for 2006 (our forecast is +3.9% for 2005 and +4.3% in 2006).
Economic data released over the past week continued the recent run of strong numbers on growth while also providing worrying signs on the inflation front. The consumer and housing markets appear to be holding up quite well early in 2005. Ex-auto retail sales in January posted a surprisingly large 0.6% gain in January, pointing to real consumer spending growth in Q1 of about 3.5% – which would be an impressive showing after the nearly 5% annualized surge in the second half of 2004. Meanwhile, the housing market remains on fire, to the point that persistent excessively low rates may be tipping the market to speculative excesses. We had thought that the bad weather in much of the country in January would at least temporarily slow homebuilding, even with mortgage rates hovering at just about 5 1/2%, but starts jumped to a 20-year high anyway, despite the weather’s apparently hurting activity in parts of the country. Unsold inventories of new homes were already at a five-year high in December and are likely to rise further after the huge starts number – unless sales similarly surprise on the upside. The strength in underlying consumer spending and residential investment suggests that domestic activity is holding up better than we initially expected in Q1 after the solid 4.3% rise in real final domestic demand in Q4, pointing to some potential upside to our initial +3.3% Q1 GDP forecast. With some sizable adjustments expected to the advance Q4 number, however (we estimate an upward boost to +3.8% from +3.1%), we will wait until these revisions are published on Friday before resetting our Q1 forecast.
After some disappointing recent results in the employment report, manufacturing data released the past week were also better than expected. Aside from a slowdown in the motor vehicle sector, which has been struggling with excessive inventories for some time, factory output was surprisingly robust in January, and early regional surveys point to further improvement in February. Though results on the headline sentiment gauges were mixed, the underlying details of both the Empire State and Philly Fed manufacturing surveys pointed to a modest acceleration in overall factory sector activity in February. On an ISM-comparable weighted composite basis, the Empire State rose to 57.6 from 57.0, while the Philly Fed increased to 56.1 from 54.8. This improvement was also reflected in the latest Morgan Stanley Business Conditions Index survey of our equity analysts, which rose 4 points to 59. As a result, we look for the national ISM to rise a half point in February to 57.0.
Meanwhile, the jobless claims data were much better than expected for a third straight week, suggesting the possibility of significant underlying improvement in labor market conditions. Initial claims in the week of February 12 – which is the reference week for the February employment report – dipped to 302,000, and the 4-week average fell to 311,750 (both the lows since late 2000). Combined with a likely weather-related rebound in certain categories that seem to have been depressed in January (construction in particular) by the flooding in California and storms in the Midwest, our preliminary estimate for February nonfarm payrolls is +225,000, which would be the best gain since October, when a recovery from hurricane disruptions significantly boosted job growth.
At the same time that growth numbers have been surprising on the upside, the inflation numbers over the past week looked increasingly worrisome. Given the fairly mild anxiety expressed by Fed Chairman Greenspan about such risks in his Congressional testimony, we believe that the upside in the PPI report in particular, but also in underlying import prices (with prices for imported consumer and capital goods continuing to steadily move to multi-year highs on a year/year basis) make the upcoming CPI report a crucial indicator. If there is any indication of a pass-through of these developments to the consumer level, it could lead to an eventual acceleration in the pace of monetary policy tightening. We continue to look for relatively tame +0.2% gains on both the headline and the core CPI this week and believe that the FOMC can stay measured. Still, the risks on the policy front are turning increasingly one-sided, as it becomes clear that the inflation environment has undergone a dramatic shift in a relatively short period. An upside surprise of anywhere near the magnitude of that seen in the core PPI could certainly put the possibility of a 50 bp hike at the March FOMC meeting on the table and would almost certainly lead to some hawkish changes in the Fed’s official rhetoric.
The key releases the past week were retail sales, housing starts, industrial production, and PPI:
* Retail sales fell 0.3% in January, dragged down by a 3.3% drop in auto dealers’ receipts, which was in line with the previously reported decline in unit sales. But excluding autos, sales gained a larger than expected 0.6%. Redemption of holiday gift cards appeared to provide a solid boost to clothing (+1.8%) and general merchandise (+0.9%) results, and a surprising jump in gas station sales (+1.8%) despite flat prices added to the upside. Meanwhile, food store sales (+0.3%) did not appear to have been significantly hit by the shift of the Super Bowl into February. Even with the fall-off in auto sales in early 2005, the strength in ex-auto results points to a 3.5% gain in real consumption in Q1, which would be an impressive result after the 5% surge in the second half of 2004.
* Housing starts posted a surprising 4.7% gain in January on top of an upwardly revised 14.3% surge in December, to reach a 20-year high of 2.159 million. The key single-family category jumped 2.7% to a new all-time high of 1.760 million, while starts of multi-family units soared 14% to 399,000. We had thought that bad weather would lead to at least a temporary pullback this month. The most amazing part of the report was that there was apparently a significant weather impact in parts of the country hit by blizzards – with the Northeast (-24%) and Midwest (-13%) seeing sharp drops – but this was more that offset by a huge rise in the South (+19%), the largest region by far for new home construction.
* Industrial production was unchanged in January, but all of the softness was attributable to a 3.0% decline in utility output. The key manufacturing gauge rose 0.4% despite a sharp fall in motor vehicle output (-1.9%) as producers slashed assemblies late in the month to try to start getting inventories under control. Excluding motor vehicles, manufacturing production surged 0.7%, led by high tech output (+1.5%, the strongest rise in eight months), chemicals (+1.0%), machinery (+1.7%), and paper (+1.7%). The overall capacity utilization rate dipped 0.1 pp to 79.0%, while manufacturing utilization rose 0.3 pp to 78.0%, the high since December 2000 and within a couple points of the long-term average.
* The producer price index rose 0.3% in January, restrained by declines in food (-0.2%) and energy (-1.0%). The core, however, surged 0.8%, lifting the annual rate to +2.7%, the high since 1995. Only a fraction of the core spike could be explained by unusual movements in volatile categories like tobacco and autos. Excluding these components, we estimate that the core would still have jumped 0.5%, with broadly based gains across various consumer and capital goods items, including alcoholic beverages, women’s apparel, drugs, tires, electronics, and agricultural, construction, and oil and gas drilling machinery. News at earlier stages of production was mixed. The core intermediate jumped 0.8%, but the core crude fell 2.5% on a pullback in steel scrap quotes.
Key focus in the upcoming week will be on Wednesday’s CPI report. Other data due out include consumer confidence Tuesday, durable goods Thursday, and revised GDP and existing home sales Friday:
* We forecast a 104.0 reading for the Conference Board’s consumer confidence index in February. The Michigan and ABC surveys point to little change in sentiment during February. So, we look for the Conference Board gauge to hold near the 103.4 reading seen in January.
* We expect both the headline and core CPI to rise 0.2% in January. Gasoline prices edged up a bit in January – but not by enough to have any meaningful impact on the headline. So, we look for a modest rebound in the overall CPI on the heels of the unusual decline seen in December (that has since been revised to a flat reading). Meanwhile, the core is expected to match the result posted in each of the past three months. The new seasonal factors removed the slight downside risk that we had seen previously – our unrounded estimate for the core is now +0.21%. The main restraining factor this month is an expected unchanged result for the motor vehicle category following some above-trend readings in recent months. Finally, the year/year reading for the core is expected to hold at +2.2%.
* We look for January durable goods orders to fall 1.0%. In recent years, there has been a tendency for orders to slip in the first and/or middle month of the quarter and then skyrocket in the final month. This pattern points to some slippage in January. Moreover, as foreshadowed by the ISM survey, the expiration of the investment tax incentive is expected to have at least a modest negative impact on bookings for capital equipment in early-2005. And a pullback in the motor vehicle category following two very strong months is also likely to help restrain overall durable goods orders this month. The key core category – nondefense capital goods excluding aircraft – is expected to be down 1.5%. However, since the underlying fundamentals remain relatively favorable, we suspect that the slippage in order activity will turn out to be short-lived.
* An upside surprise in the latest round of nonauto retail inventory data should reinforce positive contributions from net exports and construction, pushing our estimate for the revision to Q4 GDP all the way up to +3.8% (versus the originally reported figure of +3.1%).
* We forecast January existing home sales of 6.50 million units annualized. The resale figures from the NAR are tallied at time of closing. So, the severe weather – blizzards in the East and heavy rains and flooding in California – that hit much of the nation in January probably had more impact on floor traffic than on the sales numbers. Still, we look for a further dip (-2.8%) in existing home sales to a pace that is slightly below the 2004 average.