Wednesday June 15, 2005 - 08:57:12 GMT
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FX Economic Release Alerts
1. US Consumer Price Index (May) m/m (12:30 GMT, 8:30 EDT)
Outlook: Consumer prices are expected to have remained unchanged in May on a monthly basis after accelerating 0.5 percent in April according to a survey published by Bloomberg News. Yearly, the statistic is expected to fall from 3.5 percent boost in April to a 2.9 percent acceleration in May. Easing oil and gasoline prices as well as stunted food costs were cited as the major reason for this halt on price increases while an overall decrease in buying also probably added to the stagnation. Consumption has illustrated a marked slowdown recently as fewer vehicles were brought last month and consumer credit waned to $1.3B from $6.9B a month earlier. Along with this, retail sales for May posted much lower than expected. Market watchers had predicted a 0.2 percent increase in this statistic; however, the actual reading was a 0.2 percent decline without autos and a 0.5 percent drop including automobiles. Last month, both of these readings printed at robust over-one-percent increases. If the CPI numbers do come in inline with expectations, this will be the lowest reading in four months and the year's first drop in wholesale prices. The easing of inflation will weigh heavily on the minds of US Federal Reserve officials as they decide the future of U.S. interest rates and if they want to continue their tightening policy far past the current 3.00 percent benchmark rate. With a slowing economy and no inflation to flight, market watchers are anticipating a change in the Feds rhetoric and actions soon.
Previous: Prices accelerated 0.5 percent on a monthly basis in April and 3.5 percent on a yearly basis while the economy slowed markedly leading to some doubts about its future. Expensive crude oil and gasoline were most likely the reasons behind the jump in prices, meaning that although demand was not at especially high levels, the effects of oil prices hitting around 2.28 a gallon pushed costs up. Inflation accelerations of 0.6 percent in March and 0.4 percent in January were also the products of high crude oil and raw materials costs.
2. US Business Inventories (APR) (12:30 GMT, 08:30 EDT)
Outlook: US Business Inventories are expected to hang back at 0.3% in April from the 0.4% we saw in March. Manufacturing and wholesale inventories have already been reported as increasing 0.1% and 0.8%, respectively, in April. The news, therefore, will be on retail inventories. Strength in both vehicle and non-auto retail sales during April suggests softness in retail inventories. Auto inventories at retailers most likely declined during the month. Inventories have been on the decline since January when it was at 0.9 percent. Lower inventory levels may be a result of higher sales, improvements in technology that allows easier "just-in-time" inventory management, or slowing business confidence about future sales. It is likely that uncertainty about consumer demand has kept businesses from building up inventories, given that the economy has been so sensitive.
Previous: Business inventories in the US rose below the 0.6% expectation to only 0.4% due to stronger than expected sales. The inventory-sales ratio, which measures the length of time goods stay on store shelves, was pushed down to 1.31 months from 1.32 months in February due to the higher sales. This decrease in the ratio indicates that consumers have an inclination to buy. A more positive consumer view of the economy tends to resonate throughout the economy.
3.US Empire State Manufacturing Survey (MoM) (June) (12:30 GMT, 8:30AM EDT)
Outlook: Last month's Survey's inconsistency with the Philadelphia Fed and ISM reports suggests a rebound to come, which would support Federal Reserve Chairman Alan Greenspan's recent comments that the economy is on a "reasonably firm footing."
After the Empire State Manufacturing Survey plunged for two months in a row and hit the contraction territory for the first time in two years (3.10 in April and -11.11 in May), it is now expected to bounce back to 1.00 in June. The details of the last month's Survey showed the future indexes were still at favourable levels, and the contraction was mainly due to sharp deceleration in Expected Selling Prices. Still, more than 50 percent of respondents continued to expect improvement in general conditions during the next six months. Also suggesting a return to the positive area is the June ISM Index which came in at 51.40, corresponding to an above-zero Empire State Index according to JP Morgan's June Global Data Watch chart.
Previous: May Survey has surprised the market by hitting -11.1 - its lowest reading in two years, contrary to the Bloomberg News survey's estimate of 11.70. General Business Conditions Index has dropped for two months in a row, and hit the negative ground, which represents a contraction in the growth expectations. Although the NY manufacturing survey is one of the most volatile reports and NY only comprises 5 percent of total US manufacturing, it is still a piece of data that is closely watched especially for its directional change. May has also registered a divergence between the Empire State and Philly Fed indices, with the latter being more consistent with the May ISM reading of 53.30. Such a gap is usually not sustained in the long run.
4.TIC Data - Net Foreign Security Purchases (APR) (13:00 GMT, 9:00 EDT)
Outlook: Over the past 12 months, purchases of U.S. securities by foreign investors have totalled a massive $764 billion. Following the blow-out of only $45.7B billion net inflow recorded in March, the market is expecting some reversal. Additionally, the American Jobs Creation Act of 2004, which allows US companies to repatriate overseas profit at an especially advantageous tax rate, for the 2005 calendar year only, suggests that the repatriation amounts may remain heavy and evenly distributed over the entire calendar year. On the other hand, an increase in purchases of foreign oil, automobiles and clothes may have negatively affected the TIC Data. In fact, April oil prices rallied to a record close above $57 which sent the average retail cost of gasoline above $2.25 a gallon within a few weeks. It will be interesting to see if China and Japan actually increases its demand for dollar denominated assets or whether purchases are still concentrated in the hedge fund heavy Caribbean. The forecast by Bloomberg is of only 5 economists, which makes us sceptical of its accuracy.
Previous: Foreign holdings of US treasuries increased a measly $45.7Bln in March, compared to $84.1bln in Feb. This is less than the $55bln needed to fund the same month's trade deficit and also less than the most pessimistic analyst estimate posted on Bloomberg. Taking a deeper look at the details of the report and we see that both China AND Japan were net sellers of US Treasuries in March. Japan has sold US Treasuries for 3 out of the past 5 months while Chinese demand is simply waning. Regardless of what Japan and China tell us about revaluation or whether they will ever sell US dollars or Treasuries, the proof is that their appetite for dollar denominated assets have fallen significantly. The Caribbean, the home of hedge funds, has now become the third largest holder of US treasuries, outpacing the UK. Talk of hedge fund blow-up following the downgrades of Ford and GM could also hurt the future demand from this particular source.
5. US Industrial Production (May) m/m (13:15 GMT, 9:15 EDT)
Outlook: After decreasing in April, Industrial production is anticipated to have made a small comeback in May. The 0.2 percent increase will most likely be a product of easing oil prices, which are making it less costly for producers to run machinery and purchase inputs. Regional manufacturing surveys are also all expected to rebounded for the month of May, including Empire Manufacturing, which is projected to move back into positive territory and the Philly Fed survey which will probably inch up to 10 from Aprils 7.3. Although hours worked in the auto industry declined 0.2 percent that month, there was a 0.4 percent gain in hours worked in computer and electronics production. Aggregate hours worked in the natural resources and mining industry also posted strong gains which were probably a reaction to the softness in both of these sectors in April. Whether or not increases in this statistic will be sustained is yet to be seen however, especially due to the drops in retail sales, especially with vehicle sales.
Prior: U.S. industrial production posted a widely unexpected loss of 0.2 percent on a monthly basis in April. This was the biggest decline that the statistic had seen in eight months and was primarily the result of auto manufacturers cutting production and warmer weather slowing utility output. Excluding autos, however, manufacturing production actually rose last month mostly on a retreat in crude oil and gasoline prices.
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