Recap of Last Week: Inflation, Retail Sales, Confidence, Manufacturing, Trade

Inflation data showed headline prices running at a brisk 0.5% rate, though the core rate continued to show tepid growth – increasing just 0.1%. Producer prices came in weaker than expected overall, climbing 0.7% in March, but up 0.3% in the core reading. Overall, the softer CPI gave the Fed doves some credit as underlying inflation does continue to show weakness.

Retail sales were up a smaller than forecast 0.4% (forecast 0.6%) in March, cooling from the robust 1.1% gain seen in February. If we excluded cars however, sales were up 0.8%, showing continuing underlying strength for the US consumer. That’s a positive sign for 1st quarter growth. The preliminary April version of the UMich consumer confidence showed a bounce back in consumers’ moods. It rose to 69.6 from 67.5.

Industrial production posted a better than expected 0.8% (forecast 0.5%) for March, a positive surprise to the upside. That should add some extra strength to GDP numbers. The Empire manufacturing index for the April period came in a stronger than expected at 21.7 (forecast 17.1), showing us that the manufacturing sector in the US continues at a good pace. However, trade data from for February showed a decline in both exports and imports, and the trade deficit wound up narrowing less than expected at -45.8B. That is going to take a slice out of GDP in the 1st quarter, and there were some downward revision from economists for US growth during the quarter as a result of this poor trade release, with the consensus now falling to around 2% annualized rate.

Focus this Week: Housing Takes Center Stage, But is Anyone Listening?

Following the busy week we just had, this week will feature less key releases and at the end of the week we will have lower liquidity as many countries in Europe and around the world start the Easter holidays.

The housing sector will feature the bulk of the fundamental releases releases on tap, giving a break to other sectors in the economy meaning US releases may not be a strong driver for the USD in currency markets.

The housing sector showed some anemic stats last month, with housing starts falling to record lows, and existing home sales falling back below the 5 million level. This week features data that should show the housing sector bounced back a bit as the 1st quarter continued. We are expecting to see higher housing starts and building permits for March, a larger amount of existing home sales, rising housing prices, though no change in confidence among homebuilders.

The non-housing sector related data this week comes out on Thursday and may be watched with more importance considering the dearth of other macro indicators. The releases on Thursday include our weekly jobless claims, the Philly Fed manufacturing index, along with the Conference Board leading index. The latter two are both expected to cool from their previous readings.

Key US Fundamental Releases This Week:

April 18th – Monday : Homebuilders Confidence

10:00AM ET (14:00 GMT): NAHB Housing Market Index (Apr):   forecast 17, pr. 17 (Mar)

We open the week with the NAHB housing Market Index, which is expected to show a reading of 17 in April, matching the figure in March. Homebuilders have not had much reason to be confident considering the glut of extra supply that the new housing market is working through, plus the preference of home buyers to look for cheaper properties in the used home market. We shouldn’t expect this release to be a big market mover.

April 19th – Tuesday: State of Construction Sector

8:30 AM ET (12:30 GMT): Housing Starts (Mar): forecast 0.53M, pr. 0.48M
8:30 AM ET (12:30 GMT): Building Permits (Mar): forecast 0.55M, pr. 0.52M

Tuesday brings data on new home constructions and building permits. This has serious implications for the construction sector, and recently these important leading indicators for the housing industry have been sliding. Starts are expected to have climbed to an annualized rate of 530,000 units in March, higher than the 480,000 seen in February. Permits, a leading indicators for future construction, is also expected to rise, from 520,000 in February, to 550,000 in March. Unless we get a surprise here to the downside, putting further strain on an already depressed construction sector, March’s reading – if it heats expectations – should show that we may have hit a bottom, or we are seeing a dead cat bounce.

A look at housing starts:

April 20th – Wednesday: Used Homes Market

10:00 AM ET (14:00 GMT):  Existing Home Sales (Mar): forecast 5.04M, pr. 4.88M

Wednesday, another housing release as we get a look at how many existing homes were sold in March. Here too we saw the numbers dwindle down to low levels in the February month. March is expected to show a rebound in sales, with a climb to 5.04 million sales annual pace for the month, from 4.88 million in February.

April 21st – Thursday: PPI, Jobless Claims

8:30 AM ET (12:30 GMT): Jobless Claims (Apr. 16th): forecast 394K, pr. 412K

Thursday features the weekly jobless claims, as always. Last week, claims jumped back above the 400K level, an unfortunate surprise, and many traders and analysts will therefore be watching this release to see if returns back to lower levels. If we see a pick up in claims it would mean the gradual improvement in the labor market has taken a hit. New claims for the week ending April 14th, should, according to economists’ forecasts fall back below 400K to 396K.

10:00 AM ET (14:00 GMT): Philly Fed Manufacturing Index (Apr): forecast 37.1, pr. 43.4

In a look at manufacturing sector, we have the leading index the Philadelphia Fed manufacturing index. We saw a strong reading from the NY Fed Empire manufacturing survey last week, but here the pace of activity is expected to slow a tad to 37.1 from what a very high reading in March of 43.4 – the best since 1982.

Manufacturing has been a very big story of the US recovery, and manufacturing has added almost 100,000 jobs in the last 3 months, about 25% of the total jobs created during that span. Therefore, seeing further confirmation of that in the Philly Fed index would be a positive.

10:00 AM ET (14:00 GMT): Conference Board Leading Index (Mar): forecast 0.3%, pr. 0.8%

Finally, the leading index for March is expected to show a 0.3% reading, far slower than the 0.8% seen in February. The economy slowed to end the 3rd quarter on the factors we discuss below, and that will be reflected in the leading index. It should still remain comfortably above zero at 0.3%.

10:00 AM ET (14:00 GMT): OFHEO House Price Index (Feb): forecast 0.2%, pr. -0.3%

Thursday, we get also our final housing report. That is the government’s (OFHEA) house price index. It slid 0.3% in January, and is expected to have climbed 0.2% in February. Falling house prices have a very negative effect on household wealth and can cause a drop in confidence. A rebound in prices will be taken as a welcome sign.

What’s it mean for the USD?

The US economy has had to deal with a slew of headwinds during the 1st quarter. From terrible weather, to soaring oil prices, to political unrest in the Middle East to the major disaster in Japan. Each one of these had its effect on shaving off growth during the quarter. The 1st quarter is expected to grow an annualized 2.0% following the most recent batch of data.

Still, the fundamentals for the US economy do seem to be on firmer footing. Most importantly the economy is creating jobs, with the private sector adding more than 200K jobs in both February and March. If that pace keeps up it means more workers and more wages that can be put to work in the economy – mainly through consumer spending. The jobless claims data will impact the expectations around the labor market somewhat as we await the next NFP report.

While higher gas prices will cut into discretionary spending, the improvement in the labor market should make up for that as we go through the 2nd quarter. Ideally, oil prices will ease somewhat as well, removing that pressure from the US economy, or at least reduce its impact.

With a foundation of job growth, the strong performance in the manufacturing sector is also a strong positive for the US as we work our way through the 2nd quarter. Recent data has confirmed that as industrial production rose a strong 0.8%, and the NY Fed Empire index jumped out to its highest level in more than a year. The Philly Fed index was at its best level since 1984 in March, and should post a strong reading for April as well.

Therefore, the real economy should not be a major drag on the USD, especially in a week that won’t tell us too much insight into the economy beyond the housing sector.

We have also written about how the doves in the Fed have beaten back the hawks, and that has been a major driver in the currency markets as the ultra loose monetary policy of the Fed right now continues to hang like an anchor around the neck of the US Dollar.

If we jump out of the gate with risk appetite and higher equities and commodities that could be a danger zone for the USD, as it will be sold for higher yielding growth linked currencies. On the other hand, if commodities decline amid worries about global growth, we could have our safe-haven currencies, including the USD make a comeback.

Therefore our 3 fundamental keys for the US this week are:

1. Did housing starts, existing home sales rebound from their poor readings in February?
2. Do jobless claims fall back below 400K?
3. Do we continue to see strength in manufacturing sector with a strong reading from the Philly Fed index?
4. How do oil prices develop this week, and how does the USD react?

Nick Nasad
Chief Market Analyst
FXTimes

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.