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Key economic indicators and market events for August by Joe Terranova, Chief Market Strategist
Going into August, the data for July continues to be mixed, some good, some bad. Price performance of the markets has continued to move sideways, and we seem to be running out of time if 2012 is going to experience any refreshment in the current pause. Economic indicators continue to confirm that economic growth is slowing in the U.S., China, and Europe. Markets appear fixated on global central banks to further monetary policy initiatives and, in essence, place puts underneath the market. Everything the Fed does either supports or fills in the blanks of what other central banks are not doing. On August 31, the Fed’s annual symposium in Jackson Hole will serve as the “Superbowl” of monetary policy, providing as it did in 2010, a grand stage for Bernanke to telegraph the level of satisfaction he may or may not have with the policy efforts of the European Central Bank (ECB) and People’s Bank of China (PBOC). It will also allow him to indicate his intentions for the upcoming September 13 FOMC meeting, which will be the Fed’s “last call” to enact further easing prior to the presidential election. Based on whatever actions global central banks may or may not take, the Jackson Hole “Superbowl” will provide the framework by which investors can model or anchor their portfolios. I expect the meeting’s outcome will be that it’s “too late and not enough” or “just enough” to be a market catalyst.
Sunday Monday Tuesday
July 31 9:00 PM: 8:15 AM: ADP
3 8:30 AM:
China Mfg. PMI
Employment Report 10:00 AM: ISM Mfg. Index 2:15 PM: FOMC Meeting Announcement
7 8 9:30 PM:
BOE and ECB Rate Decisions
U.S. Unemployment and Private Sector Jobs
6 6:00 AM:
9 2:00 AM: 8:30 AM:
German Factory Orders
German Trade Report
12 13 8:30 AM: 14 8:30 AM: 15
China Industrial Production, Retail Sales, and Fixed Assets Investment
USDA WASDE Report China Trade Report
16 10:00 AM:
U.S. Retail Sales
Empire State Mfg. Survey
“Philly Fed” Mfg. Survey
21 10:00 AM: 2:00 PM:
23 8:30 AM:
U.S. Existing Home Sales FOMC Minutes
U.S. Durable Goods Orders
28 10:00 AM: 8:30 AM:
GOP National Convention Begins (Tampa Bay)
Richmond Fed Mfg. Index
31 9:45 AM: Chicago PMI 9:00 PM:
China Mfg. PMI Kansas City Fed Jackson Hole Symposium
Times shown are Eastern Time.
I think the Federal Reserve will pay attention to it. the U. Chairman Bernanke and fellow FOMC members are trying to gather as much info on the labor market as they can. Labor Department’s Employment Situation report.2.S.4. I think the impact of further easing measures is suspect.August indicators / events of note: China Manufacturing PMI China Manufacturing PMI (purchasing managers’ index) is released on the last day of the month. manufacturing based on an in-depth survey of 300 manufacturing firms. this report provides an influential monthly measure of the health of U. gives a clear picture of global manufacturing health.0. Adding language about extending the duration of the low interest rate environment into 2015 is one possibility. and is used for the advance read it gives on the labor market. 53.3.0. 50. The report is released monthly. The BOE acted upon further easing measures at last month’s meeting. ISM Manufacturing Index value released the next day. > 2011: July 50. increasing its asset purchase target from $325 billion to $375 billion. September 53. > 2010: July 51.9.S.S. 50. with the 10-year note trading as low as 1. An index value of 50 is the dividing line between an expanding or slowing economy. 53. Treasury yields have touched historic lows in the last couple of weeks. 2 . August 54. just a straight statement release. below 50 contraction. > November 2011-June 2012: 49.3. combined with the monthly U. September 51.8. I expect the same pattern to develop in 2012. most likely with longer term Treasuries and mortgagebacked securities.2. It’s important to add the ADP employment report to the calendar this month because if there’s a significant deviation from the norm. I will say that they are clearly leaning in that direction and will eventually do so. the Bank of England (BOE) and European Central Bank (ECB) announce their respective interest rate decisions.3. An index value above 50 indicates growth. ISM Manufacturing Index Issued by the Institute of Supply Management. I think July could pull in a 50-51 and surprise to the upside. August 51. It is inconclusive to say that Wednesday. I think we can expect both the BOE and ECB to do whatever they can to support growth-absent European environments. There will be no Bernanke press conference after the FOMC meeting. economic picture has not yet crystallized. August 50.3. August. private payroll data (excluding government) compiled by Automatic Data Processing (ADP). two days ahead of the U. ADP Employment Report This report is based on U. September 54.5.379%. 51.1. I think we’ll see a little improvement in the July ISM. 50. where we saw a modest uptick sequentially in July.7.7.2.S. We slipped just under 50 in June with a reading of 49. yet there are still some things the Fed can do. Return to Page 1 Bank of England and European Central Bank Rate Decisions On August 2. You should be watching: There’s been a seasonal trend to China PMI in each of the last three years. and September. FOMC Meeting Announcement The Federal Open Market Committee (FOMC) releases its interest rate decision following its monetary policy meeting.S. 50.5. This monthly gauge of China’s manufacturing sector.S. Data released is for the previous month. However. U.7. Historical China PMI readings: > 2009: July 53. August 1 will be the day the Fed announces further expansion to the balance sheet.
We saw modest improvement in the headline number last month.S. China’s investment in its fixed assets is really where you can see if China’s monetary policy is working or not through its investments in petroleum. The WASDE report will give us a picture of what’s going on with the drought in the Midwest and the challenges to cotton. As such.6% last month. livestock. Last month. I’ve watched China’s economic indicators closely for months. Retail Sales.August indicators / events of note: U. German factory orders were up 0. The report gathers information from a number of statistical reports published by the USDA and other government agencies. this month we’re looking for 115. and utilities.4% month on month. > Retail sales is a measure of total receipts at stores that sell durable and nondurable goods. You should be watching: We look to the unemployment rate to remain unchanged at 8. Last month. My reason for watching this data is to make sure that German-produced capital and consumer goods do not initiate a contraction trend. China CPI was 2.000 to 130. compared to a reading of 6. which was the biggest month over month rise that we’ve seen in over 12 months. Employment Situation report. wheat. and corn figures. but this is the first time I’ve put the fixed assets investment report on the calendar because I’m putting more emphasis on this indicator.S. mining. China Industrial Production. and global crops and U.000 private sector jobs were added.000 jobs to be added this month. including manufacturing. soybean. and provides a framework for additional USDA reports. What a difference a year makes. I suspect that the decline of the euro over the last couple of months will have a longer term favorable outcome for German economic conditions.2%. I suspect that the weakening in the euro is favorable for German exports. Unemployment and Private Sector Jobs Private payroll data is part of the Labor Department’s monthly U. > Fixed assets investment discloses how much China is investing in the country’s infrastructure projects. power.S. and machinery industries. 84. exports were up 4. China fixed assets investment was up 20.2% month over month. month on month. This report has a significant economic impact and will let us see what the supply and demand picture for these commodities looks like. Another low CPI figure would continue to clear all roadblocks for further monetary easing measures from the PBOC. and has the power to move markets. China CPI The consumer price index (CPI) measures the price of consumer goods and services. is the best gauge of the economy’s direction.000 jobs. This data gives the true employment story. like roads and bridges. Return to Page 1 3 . and Fixed Assets Investment > Industrial production measures changes in output for the industrial sector of China’s economy. Last month. at +80. telecommunications. German Factory Orders Germany issues its monthly release of manufacturing orders (domestic and foreign). German Trade Report Germany’s import and export data is provided in its monthly trade report.S. We’re looking for 110. USDA WASDE Report The World Agricultural Supply and Demand Estimates (WASDE) report provides the USDA’s comprehensive forecasts of supply and demand for major U. CPI data are significant indicators of inflation. Last month. released by the Federal Statistical Office in Wiesbaden.000 new jobs.000 to 125.2%.5% in July 2011.
compiled by the Institute of Supply Management – Chicago.6 (June). 56. Chicago PMI readings from February through June 2012: 60. 52. Over the first quarter of 2012.37 million were mildly disappointing coming off the prior month’s reading of $4.2. Recent retail sales data suggests softening. the District of Columbia. Return to Page 1 4 .S. Putting this indicator back on the calendar says a lot. Maryland. we haven’t included it in a long time. -16. GDP and this report. when sales were at $3.S. I suggest that a positive Philly Fed reading in August should be confirmation for investors that potential appreciation in the markets is about to unfold. There is an incredibly high correlation between U. Existing homes account for a larger share of the market than new homes and indicate housing market trends. and interest rate data on the Chinese economy. Last month’s retail sales were down 0.21 (March). but I don’t expect to see much movement either way this month. The most important of these manufacturing reports is the Philly Fed. Department of Commerce. In fact. Each report is based on the previous month’s data. and is considered a proxy for the overall U. Regional Manufacturing Indicators > Empire State Manufacturing Survey The Federal Reserve Bank of New York conducts this monthly survey of manufacturers in New York state across a variety of industries.2. You should be watching: China’s imports and exports data are worth watching. Each report is based on the previous month’s data. month on month. 19.9. U.5%. the Richmond Fed Manufacturing Index significantly contracted at 17. 62. export.2. Data released is for the previous month.53 (February). and even the market itself. and 52.8 (May). Manufacturing activity has ground to an absolute halt in the mid-Atlantic and Southeast region. Retail sales measure total receipts for sales of durable and nondurable goods. > “Philly Fed” Manufacturing Survey This monthly survey provides useful intelligence on manufacturing conditions within the Philadelphia Federal Reserve district and is an indicator of broad manufacturing sector trends. U. the Carolinas. and -5. below 50 contraction. A reading above 50 indicates an expanding business sector. We should be keeping an eye on this number. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. > Chicago PMI This monthly index.39. economy. and 20. and Chicago PMI manufacturing reports to see if regional manufacturing has clearly slowed. We’re seen contraction in regional manufacturing over the last few months.7.S. Richmond Fed.39 million.31. > Richmond Fed Manufacturing Index The Federal Reserve Bank of Richmond release a monthly report of manufacturing activity in the mid-Atlantic and Southeast. and I believe we are coming off the bottom that was put in place two years ago.0. There has been a lot of improvement in existing home sales.48 (January). Existing Home Sales This monthly report from the National Association of Realtors provides sales-closing data on previously constructed homes.S. but we have probably marked the bottom. Last month we saw it slip to 7. in July of 2010. Retail Sales Retail sales data is released monthly by the U. and co-ops.S. provides insight into business conditions at manufacturing and non-manufacturing firms in the Chicago area. which contracted in each of the last few months: -12. 64. the Empire State Manufacturing Survey readings were 13. Report data is for the month in which it is released. Last month. Last month’s sales of $4. so this month we’re going to pay attention to the Empire State.9 (July).62 million. Philly Fed. I wouldn’t call it an acceleration. condos.August indicators / events of note: China Trade Report China’s monthly trade report provides important import. which includes Virginia. and parts of West Virginia.
however. U.S. which will be released on August 29. Investors should be looking to the August report for any impact to Q2 GDP.August indicators / events of note: FOMC Minutes The Federal Open Market Committee (FOMC) releases minutes from its July 31August 1 meeting. Commerce Department reflects new orders placed with U.S.S. Preliminary GDP for Q2 2012 will be released this month. The most impactful monetary measures for the markets would be the PBOC’s efforts. Data reported is for the previous month. only three meetings remain for the year.5%. Additionally. Kansas City Fed Annual Jackson Hole Symposium The Kansas City Federal Reserve’s annual symposium in Jackson Hole. but I decided to leave it on and see what insights the minutes may reveal. Commerce Department.S. tracks the purchases of all U. Wyoming features a keynote address by Fed Chairman Ben Bernanke. released by the U. Beige Book FOMC commentary on current conditions in each of the Federal Reserve’s 12 districts is released two weeks prior to the next FOMC meeting. a member of the Bank of England’s monetary policy committee. The September 13 meeting will be the “last call” for Chairman Bernanke to introduce further monetary easing prior to the election. GDP The quarterly GDP report.S. the internals of the report highlighted continued soft business investment and demand conditions. Overall. Return to Page 1 5 . Durable goods orders increased 1. Europe has been picking up slack and is also important to the FOMC.6% in June. U. and his intentions for the September 13 FOMC meeting. well ahead of analyst estimates of +0. The Jackson Hole meeting will be attended by the IMF’s Christine Lagarde and Adam Posen. goods and services in all sectors and is the broadest measure of the economy. Durable Goods Orders This monthly release from the U. I expect that a lot of what the Fed may do is provide support for whatever the ECB or PBOC may not do. it was a mixed report that did not provide any evidence that Q2 GDP estimates should be raised. manufacturers for immediate and future delivery of factory hard goods. You should be watching: I was tempted to take this indicator off the calendar this month.3%. It will give Bernanke the opportunity to telegraph his views of other central banks’ policy measures. This month’s Beige Book is for the September 12-13 meeting. Is there anything in this report to suggest a potential change to GDP one way or the other? Advance Q2 GDP was 1.S. I’ll be looking at the Fed’s Beige Book for any insight or useful nuggets into what the FOMC could be looking at ahead of its September meeting. Following the FOMC’s August 1 meeting. I would imagine that Bernanke will aggressively read through this report ahead of his Jackson Hole symposium speech. and is an indicator of how busy factories will be to fill those orders.
Mr. In his current role. Inc.. Not all products or marketing materials are available at all firms. As a result. Terranova works with Virtus’ regional sales teams and the financial advisors who sell the company’s investment products. or its subadvisers. .S. but they may be incomplete or condensed and we do not guarantee their accuracy. one of the New York Mercantile Exchange’s largest firms. member FINRA and subsidiary of Virtus Investment Partners. providing insight into the domestic and global investing landscape and has represented Virtus as a keynote speaker for several financial institutions. The opinions stated herein are those of the author and not necessarily the opinions of Virtus. Before joining MBF. he cautioned investors to move to the sidelines in commodities and. a book about the “new rules” of investing based on his years as a professional trader. client accounts may differ in strategy and composition from the information presented herein. Chief Market Strategist. This communication is not an offer or solicitation to purchase or sell any security. and JP Morgan Securities. He is the author of “Buy High. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions.JOSEPH M. Tobin College of Business at St. His work was highlighted as the feature story in the June 2004 issue of Futures magazine. In this capacity.com This commentary is the opinion of Joe Terranova. Mr. Mr. TERRANOVA. including the first Gulf War. its affiliates. Mr. 6353 7-12 © 2012 Virtus Investment Partners.” a program that rewards excellence in the classroom for elementary school students. Terranova held positions at both Swiss Banking Corp. For more information. In 2003. Terranova is a regular panelist on CNBC’s highly rated program Fast Money and a frequent panelist on CNBC’s Fast Money Halftime Report. Terranova is perhaps best known for his risk management skills. he was one of the first Wall Street professionals to make an early call for higher energy. John’s University in New York. Inc. and commodity prices. In 2007. Terranova spent 18 years at MBF Clearing Corp. visit Virtus. honed while overseeing MBF’s proprietary trading operations during some of the most calamitous times for the U. Mr. Virtus Investment Partners provides this communication as a matter of general information. Any facts and statistics quoted are from sources believed to be reliable. Sell Higher” (Business Plus. and it is not a research report. Virtus Investment Partners Joe Terranova is chief market strategist for Virtus Investment Partners. markets. In June 2008. having started with the company in the role of chief alternatives strategist. He is a member of the Virtus Investment Oversight Committee. he encouraged investors to ignore the global “embracement of pessimism” and overweight equities. LLC. he managed more than 300 traders and support staff for MBF. 9/11. in March 2009. Terranova and Hockey Hall of Fame player Mike Bossy established “Bossy’s Bunch. Terranova earned a bachelor’s degree in finance from the Peter J. Individuals should consult with a qualified financial professional before making any investment decisions. He was elevated to that position in June 2009. natural resources. 2012). Mutual Funds distributed by VP Distributors. the 1998 Asian Crisis. and the collapse of Amaranth Advisors. Prior to joining Virtus in 2008. rising to the position of director of trading for the company and its subsidiaries. Mr.
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