Weekly Economic Indicators: Energy, Housing, Quad Witching

Natural Gas Fracking

Natural Gas Fracking (Photo credit: danielfoster437)

The schedule of economic releases for the week of March 11th is as follows:

  • Monday:  None
  • Tuesday:  NFIB Small Business Optimism Index, ICSC-Goldman Store Sales, and Treasury Budget
  • Wednesday:  MBA Purchase Applications, Retail Sales, Import and Export Prices, and Business Inventories
  • Thursday:  Jobless Claims, Producer Price Index, and Fed Balance Sheet
  • Friday:  Quadruple Witching, Consumer Price Index, Empire State Manufacturing Survey, Treasury International Capital, Industrial Production, and Consumer Sentiment

I spoke with Jonathan Corpina, Senior Managing Partner of Meridian Equity Partners and frequent CNBC commentator, about what he feels will be impactful to the market next week.  Corpina will be watching a number of data points, including the overall market, weekly jobless claims, retail sales, consumer sentiment, and quadruple witching.

Overall Market View

Corpina said in order to predict the market’s next turn, it is important to understand why the DJIA was able to reach new highs. The standout sector in this push is energy and the safe haven dividends play. But the main narrative remains the story of the US housing market. Over the past year, US home-building stocks have doubled, causing the consumer discretionary and financial sectors to tread upwards as well. But if household debt levels continue to rise and payrolls continue to fall, the growth we have been seeing in the housing market will become anemic. Unfortunately, the risks involved in international markets are not idiosyncratic. He went on to say the high levels of uncertainty in European economies are contagious. For example, the debt levels in Greece, the weakening of the French economy, the intensity of economic risk in Spain, and the signs of overheating in Germany are all systemic risks that will continue to impact US equities. In addition, the Chinese economy has grown at an accelerated rate. He expects growth in China to stabilize in 2013 and only expand by roughly 8%. Chinese equities have suffered, reflecting the bearish outlooks regarding China’s growth rate, but are slowly rebounding. Many investors are doing whatever it takes to reach for yields in this economy, including dumping money in junk bonds that have measly 6% yields. Historically speaking, equities have consistently grown at a steady rate. Institutional demand for equities have soared over the past month. And because of their consistent rate of return, he believes equities will always be the market of choice.  f the US succeeds in their fracking efforts, it is safe to assume that oil & gas will experience a bull market (regardless of the political implications of being self-sufficient comes with).

Initial Jobless Claims

According to Corpina, many state economies within the US are heavily dependent on defense and aerospace (the US’s third largest export) spending for growth and stability. States like California and Colorado depend on military exports, specifically guns. The US trade deficit will likely widen as military exports decline. Large spending cuts in defense will have a negative impact on the jobless claims for the upcoming week, but is likely to be off balanced by job growth in construction.

Retail Sales and Consumer Sentiment

He believes the combination of better-than-expected economic data, and the performance in the equity market has convinced consumers that the US economy is rebounding. As a result of this, Corpina expects both consumer sentiment and retail sales to rise.

First Quadruple Witching of 2013

It appears that investors are becoming more comfortable in the market and are willing to take on more risk, which, as a trader, is refreshing to see. Many institutions are selling their positions in French equities, and buying American ones.

View from the Trading Floor

Many traders expect the US economy to continue rebounding, but fear that the uncertainty and risks associated with the international political dilemmas will negatively impact equity markets across the board.  Separately, he feels the spending cuts will have a negative effect on the US economy as a whole.

 

Final Word

People in their twenties tend to be the best consumers due to the fact that the majority of their incomes are disposable. The US economy thrives when consumer sentiment and retail sales are high. The increase of student loans is going to be devastating for the US economy because of its consumption driven model. Income that could have gone to a down payment on a car or a house is now being shoveled into the repayment of student debts. Indebted college graduates will no longer be as willing to spend, transforming into frugal consumer. This is extremely important not to overlook as the results could be devastating.

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