Advertisement
Singapore markets closed
  • Straits Times Index

    3,224.01
    -27.70 (-0.85%)
     
  • Nikkei

    40,168.07
    -594.66 (-1.46%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Bitcoin USD

    70,872.77
    +1,515.56 (+2.19%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Gold

    2,254.80
    +16.40 (+0.73%)
     
  • Crude Oil

    83.11
    -0.06 (-0.07%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • FTSE Bursa Malaysia

    1,530.60
    -7.82 (-0.51%)
     
  • Jakarta Composite Index

    7,288.81
    -21.28 (-0.29%)
     
  • PSE Index

    6,903.53
    +5.36 (+0.08%)
     

Inflation and retail sales — What you need to know for the week ahead

The economic and earnings calendar slowed a bit last week, but markets positively received this seeming lack of news as each of the major US indexes closed the week at fresh records.

The Dow gained 96 points to close at 20.269.37, the S&P 500 gained 8 points to close at 2,316.10, while the Nasdaq added 19 points to close at 5,734.13.

Much of the focus was, of course, on the goings on down in Washington, with perhaps the most notable development crossing in the final few hours of trade on Friday.

On Friday afternoon, Federal Reserve board governor Daniel Tarullo said he would resign from the Fed, leaving the central bank on or around April 5. This now creates three openings at the Fed for the Trump administration to fill.

ADVERTISEMENT

Tarullo, we’d note, was the Fed governor in charge of overseeing financial regulation. A major part of the post-election rally in stocks was centered on the financial sector, as a partial or full roll-back of the Dodd-Frank regulations put in place after the financial crisis was seen as a positive for the sector.

The departure of Tarullo from the Fed board now not only allows the Trump administration to put a major imprint on the Federal Reserve, but gives added juice to an investing thesis predicated on decreased regulation in the financial sector.

Federal Reserve governor Daniel Tarullo.
Federal Reserve governor Daniel Tarullo.

Earlier in the week, stocks rallied after Trump said that his administration would, in the next couple weeks, be announcing something that is “phenomenal in terms of tax.” And now, maybe something phenomenal on regulation, too.

Looking quickly to this week, the earnings calendar will slow some, though we will get headline reports from T-Mobile (TMUS), Molson Coors (TAP), LendingClub (LC), Hilton Worldwide (HLT), PepsiCo (PEP), Cisco (CSCO), CBS (CBS), Kraft Heinz (KHC), and Deere (DE).

On the economic data side, the week’s reports will be the monthly updates on consumer prices and retail sales, which are both due out on Wednesday.

Investors will also hear from Fed Chair Janet Yellen on Tuesday and Wednesday as she’ll deliver he bi-annual testimony before Congress and face questions from lawmakers.

Economic calendar

  • Monday: No major economic data released.

  • Tuesday: NFIB small business optimism, January (105.0 expected; 105.8 previously); Producer prices, January (+0.3% expected; +0.3% previously)

  • Wednesday: Empire State manufacturing (7.0 expected; 6.5 previously); Consumer price index, January (+0.3% expected; +0.3% previously); “Core” consumer price index, year-on-year (+2.1% expected; +2.2% previously); Retail sales, January (+0.1% expected; +0.6% previously); Industrial production (+0% expected; +0.8% previously); Homebuilder sentiment, February (67 expected; 67 previously)

  • Thursday: Housing starts, January (+0.1% expected; +11.3% previously); Building permits, January (+0.2% expected; -0.2% previously); Initial jobless claims (245,000 expected; 234,000 previously)

  • Friday: No major economic data released.

Consumers losing confidence?

Since the election, business and consumer surveys have surged.

This “soft data,” however, is still yet to be backed up by a big run of solid “hard data” — think things like the jobs report, retail sales, and durable goods orders — to indicate that the election ushered in a new era of growth for the US economy.

Certainly, consumer sentiment is important, as consumer spending account for about 70% of GDP. If consumers are feeling good and consumers are spending, the US economy is going to do well.

But on Friday, the preliminary reading on consumer sentiment in February from the University of Michigan didn’t so much show a decline in sentiment as it revealed that the cracks we see in the US politically exist when it comes to how people feel about the economy.

“To be sure, confidence remains quite favorable, with only five higher readings in the past decade,” said Richard Curtin, chief economist for the UMich survey of consumers.

Curtin added that, “Importantly, the data do not reflect any closing of the partisan divide… a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount, except for five surveys in 2013 and 2014 that were solely dominated by negative references to the debt and fiscal cliff crises.

“Moreover, never before have these spontaneous references to economic policies had such a large impact on the Sentiment Index: a difference of 37 Index points between those that referred to favorable and unfavorable policies. These differences are troublesome: the Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion).” (Emphasis added.)

But it is Curtin’s final observation that bears keeping most in mind.

“While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth,” Curtin said.

“Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.”

And this is really the heart of the issue.

We wrote last week that the average member of the investor class looks like the average Trump voter. Looked at this way, it shouldn’t be surprising that markets are giving Trump the benefit of the doubt. Investing in stocks is, after all, built on explicitly positive outlooks for companies and the economy.

But the consumer class, perhaps, reflects more of the turbulence we see in the day’s political headlines. The average consumer is, well, the average citizen. And anyone who follows markets also knows that negative news plays louder than positive news.

And if the negative news slows consumers, then this could slow the economy. And stocks probably won’t like that either way.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

Read more from Myles here: