Weekly Economic Indicators: Europe's Woes Weigh on New Year

English: Euro bank notes Türkçe: Euro banknotlar

Money makes the world go 'round

The full announcement schedule for the week of January 2nd , is as follows:

  • Monday:  New Year’s Day Observed, All Markets Closed
  • Tuesday:  ISM Mfg Index, Construction Spending, and FOMC Minutes
  • Wednesday:  Motor Vehicle Sales and Factory Orders     
  • Thursday:  ADP Employment Report, Initial Jobless Claims, ISM Non-Mfg Index, and Fed Balance Sheet 
  • Friday:  Employment Situation 

Click this link for the full economic calendar for the week.

 

Overall Market View: Arthur Cashin, Managing Director of Floor Operations at UBS Financial Services and frequent CNBC commentator, believes Europe will continue to drive the financial markets. The headlines from the euro zone may have subsided a little last week but fear of defaults in the region are still pervasive. He commented that the funds provided to local banks by the European Central Bank (589 billion Euros) are not circulating in the banking system, as contemplated. The banks are instead holding the excess cash in reserve, with no lending between financial institutions. Banks are worried about which institution has the most exposure to European sovereign debt and thus the highest level of risk. Cashin pointed out that it is critical for banks to start lending to each other in order to unfreeze the credit situation in Europe. He added that the situation in Europe is similar to the financial crisis the US experienced during the meltdown of 2008. Cashin understands the Greeks are seeking safe havens in Swiss Francs and the populists in Italy are fleeing into gold and other assets. Investors are moving funds into other currencies outside of the European Union, as they are fearful of risks embedded in the banking system and the potential for a worsening of the current crisis situation.

Motor Vehicles Sales and Help Wanted Index: Cashin believes motor vehicle sales may continue to increase due to pent up demand. Customers have been waiting to get a deal for a while and many will be visiting dealerships looking for a post-holiday bargain. He predicts replacement demand will also drive sales to a degree. Separately, Cashin thinks the help wanted index will go up in the new year, as more and more people begin to look for firms seeking temporary help. 

Fed Balance Sheet and the FOMC Minutes: Cashin is not expecting anything remarkable from the Fed’s Balance Sheet report, as the agency can’t manipulate the money supply much more than it already has. Cashin pointed out that you need banks to lend and spend money and generate velocity. He is expecting the minutes from the FOMC meeting will reveal that the agency is concerned with deflation. He believes most Fed members are dovish and will continue to be in that mode for the foreseeable future. The few hawkish voting members on the committee are also expected to step down in the near term, including Dallas Fed CEO, Richard Fisher. Finally, Cashin thinks the central bank will loosen the money supply more, possible a twist in the QE3.

Initial Jobless claims, Non-Farm Payroll, and ISM Manufacturing: Cashin is looking for the Jobless Claims numbers to continue to be below the all important 400K mark, however, he anticipates a little bump, about 8K, due to the seasonal retail hiring season winding down.  Cashin is also anticipating Non-Farm Payroll numbers will continue to improve and the unemployment rate will be at par or slightly below the last reading of 8.6%. He went on to say, growth in the US is directly affected by what happens in Europe, if the situation improves then the US will see some growth. However, if Europe is unsuccessful in containing the debt crisis it will likely also drag down the US economy. With regards to ISM Manufacturing data, he expects an upside bias due to some upbeat readings in manufacturing activity from regional ISM members.