Considering the fiscal cliff the U.S. is hurtling toward,
financial markets are either blissfully optimistic or whistling past the
graveyard. The Dow Jones Industrial
Average gained 0.32% Friday and is up 8.9% so far in the second half of the
year. Meanwhile, the yield on the
10-year U.S. Treasury note has risen 20 basis points since June 1 to 1.65%.
The action came against a skeletal backdrop. Productivity in the second quarter was
reported to have risen 1.6% after falling 0.5% in the first quarter, when
hiring was more robust. The cruelest irony
of the soft jobs market is that rising output per worker has meant less
pressure for firms to add workers.
Wholesale inventories declined 0.2% in July, signaling
either increasing demand or business pessimism – take your pick. And the federal budget went $70 billion
further in the red last month versus a $60 billion deficit in June.
The most encouraging news was the surprising drop in initial
jobless claims to 361,000 versus an expectation of 370,000. Our colleague Rich Bieglmeier was spot on
with his call on this high-frequency series.
There will be stronger hooks to hang a hat on this
week. Tuesday brings the biggest number,
retail sales for July. Recall that last
month’s report of a 0.5% decline in June kindled fresh speculation that the
economy was tipping over and the Federal Reserve would be forced to act. Economists generally expect a 0.2% increase
in sales and 0.3% increase excluding automobiles.
The producer price index for July, also on Tuesday, is seen
rising a benign 0.2% including and excluding food and fuel prices. The consumer price index, to be released
Wednesday is seen rising a similar amount.
Also Wednesday, the Empire State Index of August business activity in
New York, industrial production in July and the homebuilders index are slated
for release.
Also on tap are jobless claims, housing starts and the
Philadelphia Fed’s survey on Thursday.
On the earnings front, big retailers are in the
spotlight. On tap to report quarterly
results are Home Depot, Wal-Mart, Target and Sears. The results could be key to setting the tone
for the week.
This week, we inaugurate our Houdini Award with a nod to Goldman
Sachs for escaping criminal prosecution for touting securities it was betting
against, proving once again it’s better to be right and lucky.
And our Laurel Wreath goes to Shakespeare’s “scepter’d
isle,” for hosting all the Bolts, Phelpses, Douglases and synchronized swimmers
while delighting our teenage daughter with a closing ceremony performance of
English boy band One Direction.
Meanwhile, U.S. investors prepare for the post-Olympics
fiscal cliff-diving competition in 2013.
Good luck.
