MONDAY SCOUTING REPORT: This Busy 4-Day Week Will End With An Incredibly Crucial Economic Report
Lots of members of the Federal Reserve will be giving speeches this week, perhaps offering clues as to what's next for monetary policy.
Among the key economic data releases this week will be the personal income and spending report, which is arguably the most important report of the year so far.
Top Stories
- Cyprus: The tiny island country of Cyprus continues to dominate headlines as euro zone finance ministers structure a deal to bail out the country's banks. Late Sunday night, details of a deal emerged that uninsured depositors would take a big haircut. The good news is that those accounts with balances under 100,000 euros would not be touched. This story is still developing as Cyprus makes plans to reopen its banks on Tuesday. The big question: Will there be a run on the banks?
- Fedspeak: Despite signs that the economy is improving, the labor market remains weak. As such, the Federal Reserve is likely to stick to its commitment to keep interest rates near zero. However, Fed members Dudley, Fisher, Rosengren, Pianalto, Kocherlakota, as well as Chairman Bernanke will be giving speeches on the economy this week. "While President Fisher’s remarks are likely to remain hawkish, and President Rosengren to remain dovish, Dudley and Pianalto could signal if the moderates remain comfortable with current policy," says Deutsche Bank's Carl Riccadonna.
- No American Manufacturing Renaissance: One of the more exciting emerging economic stories has been the American manufacturing renaissance, the idea that low energy prices, increasing productivity, and rising costs overseas would invigorate the production of goods in the U.S. However, Goldman Sachs economist Jan Hatzius argues that this is more of a short-term cyclical story, not a long-term structural one. "Evidence for a structural renaissance is scant so far," writes Hatzius. "Measured productivity growth has been strong, but US export performance — arguably a more reliable indicator of competitiveness — remains middling at best. And at least so far, there is not much evidence for large positive spillovers from the U.S. energy cost advantage to broader manufacturing output."
Economic Calendar
- Durable Goods Orders (Tuesday): Economists expect the headline orders number to have jumped by 3.9 percent. However, core capital goods orders -- a key reading on the business' investment activities -- is projected to have fallen by 1.0 percent. "Total orders likely rebounded after a plunge led by exceptionally volatile civilian aircraft and defense components," says High Frequency Economics' Jim O'Sullivan. "Conversely, core capital goods probably plunged after surging. Through the volatility, orders appear to have picked up in recent months."
- Personal Income And Spending (Friday): BlackRock's Russ Koesterich believes this is the most important economic number now. "While consumer resilience to the tax increase can partly be attributed to a stronger labor market, lower savings and low interest rates have also cushioned consumption," wrote Koesterich. "But neither low interest rates nor low savings are likely to prove sustainable over the long term. The Federal Reserve is likely to eventually raise rates and without faster personal income growth, consumers are likely to run out of savings, especially considering the massive amount of debt they are still unwinding." Economists expect income to have climbed 0.9 percent and spending to have climbed by 0.6 percent.
Market Update
"We think the stock market still has room to rise because equities are now more attractively valued and of higher quality than they were at previous peaks," argues Seth Masters of Alliance Bernstein.
However, there is plenty of political uncertainty looming that could crush the rally.
Former OMB head and current Citi vice chairman Peter Orszag recently spoke with Business Insider's Joe Weisenthal and explained why we should soon expect another debt ceiling debate. In case you forgot, the debt ceiling debate of 2011 ended with the U.S. losing its AAA credit rating and the stock market plunging.
Watch the interview with Peter Orszag here: