July 19, 2010

It was not a good week for the economic report card last week.  We started the week with NFIB Small Business Optimism, which reported the lowest reading in three months (89.0 act. vs 91.2 est.), and it continued downhill all week.  Retail Sales was next (-0.5% act. vs -0.1% est.), showing the consumer is pulling back, followed by the FOMC minutes from the June 23rd meeting, where the fed thought the economic outlook had “softened somewhat” and it “expected the pace of hiring to remain low for some time.”  In the manufacturing sector, both the Empire Manufacturing (5.08 act. vs 18.00 est.) and Philadelphia Fed (5.1 act. vs 10.0 est.) came in substantially lower than expected, but were still above 0.0, which indicates expansion. On the inflation front, where the fed minutes had mentioned “some risk of deflation,” the PPI (-0.5% act. vs -0.1% est.) and CPI (-0.1% act. and est.) were both negative.  We finished the week with the University of Michigan Confidence number (66.5 act. vs 74.0 est.), which hasn’t been this low since August 2009.  In the U of Michigan survey, a record low share of Americans expected their incomes to rise in the next 12 months, and this pessimism could restrain consumer spending going forward. FYI-The 2 year treasury had its lowest close ever, at 0.585%, on Friday.

This week there isn’t much on the economic calendar, with a couple housing numbers, but Bernanke’s semiannual testimony, the old Humphrey-Hawkins, to the Senate Banking Committee on Wednesday and the House Financial Services Committee on Thursday will be the highlight. After last week’s FOMC minutes, anything the markets can get about the fed’s current thoughts and outlook on the economy and inflation/deflation will be highly scrutinized. This also is a big week for corporate earnings, which so far have been mostly positive, but the markets aren’t getting many encouraging words from CEOs about the future.

			Expected		Previous
7/19	Monday
7/20	Tuesday	Housing Starts (Jun)	576k	vs	593k
		Building Starts (Jun)	575k	vs	574k
7/21	Wednesday	Bernanke Gives Senate Banking Report
7/22	Thursday	Existing Home Sales(Jun)	5100k	vs	5660k
		House Price Index (May)	-0.2%	vs	+0.8%
		Leading Indicators (Jun)	-0.3%	vs	+0.4%
		Bernanke Gives House Finance Report
		Jobless Claims (Jul 17)	445k	vs	429k
7/23	Friday

Treasury Curve

Maturity	Yield 7/19/10	Monday 7/12/10
1-Year	0.25	0.29
2-Year	0.59	0.63
5-Year	1.70	1.82
10-Year	2.95	3.03
30-Year	3.96	4.02

	7/16/10	+/-	7:00 A.M.	+/-
Dow	10097.90	-261.41	10159.43	+61.53
MSFT	24.89		25.18	+0.29
BA	61.90		62.68	+0.78