The S&P 500 Index ended last week at a new high, and the technical trend momentum picture is bullish. But we’ve seen similar moves since February reverse several times, as the market has remained in a choppy and grinding narrowing range (with a mild upside bias).
The $64,000 question: Do we trust the move we just got by taking it at face value, or is this another potential fakeout? We’ll weigh the odds below, after taking a detailed look at some of last week’s and this week’s economic numbers.
While the economic dance-card was pretty full last week, not much of the data has hard-hitting. The portion of it that was heavy-duty stuff, though, wasn’t encouraging.
For instance, the pros were looking for a little measurable progress on the retail sales front. Overall retail sales were flat in April, versus expectations of a 0.2% improvement. Retail sales without automobiles were only up 0.1%, compared to an expected 0.2% increase. And no, we can’t blame lower oil/gasoline prices for the weakness. Consumers are (still) basically keeping their purse strings drawn fairly tightly; May’s surge was an exception to the recent norm.
Last week’s surprisingly low Producer Price Inflation rate casts a shadow of doubt on this week’s upcoming consumer inflation data. Producers saw a 0.4% decline in their overall input costs, versus a forecast for a 0.2% uptick. Core producer inflation (without food and energy) fell 0.2%, versus an expected 0.2% rise. On an annualized basis, we’re now seeing deflation for producers. Though the lull in oil prices is the reason for the swing to a deflationary environment, even without the slump in volatile food and energy prices, prices/costs are very weak, suggesting a lack of pricing power.
If last month’s producer inflation data is any indication of what’s in store for this Friday’s consumer inflation report, then the Fed need not be in any hurry to raise rates – inflation isn’t anywhere near running rampant.
Last but not least, Capacity Utilization and Industrial Production continue to fade. Capacity utilization fell from 78.6% to 78.2%, and industrial production fell another 0.3%. Both readings came in lower than expected.
While the developing trends are ugly, know that waning oil-drilling and refining is being pegged as the bulk cause of this weakness. Everything else is on the following grid:
This week is going to be a little lighter in terms of economic news, though it’s going to be a huge week for real estate and construction data. The party gets started on Tuesday with last month’ housing starts and building permits, though we’ll get the existing home sales report on Thursday. Both housing starts and building permits are expected to tick higher, to 1.0919 million and 1.065 million, respectively. Meanwhile, existing home sales are projected to edge up just a bit, from a pace of 5.19 million to 5.24 million.
Not that these trends have been “bad”, but we could use a little progress on all three fronts.
Also remember we’ll get last month’s consumer inflation report on Friday.
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