Despite a massive $1 trillion bailout package announced by the European governments and the IMF at the end of the preceding week—which had a temporary positive impact on markets on Monday—global investors continued to harbor doubts about whether the package could contain the Eurozone’s growth and stability problem. Fiscal austerity measures announced by Spain and Portugal over the past week reinforced concerns about European growth momentum, and the euro suffered another large negative hit. While the apparent European quagmire is distressing in terms of the outlook for domestic growth in Europe, the sharp downward move in the euro eventually will be constructive for resolving the overall situation.
At the same time, the higher U.S. dollar, lower crude oil prices, and lower mortgage rates are actually very positive for the U.S. domestic outlook, so prospectively stronger domestic demand in North America, not only in the second half of 2010, but also in 2011, can also play a role in stabilizing the situation for industrialized countries.
Next week, we expect to see further progress in terms of the housing recovery, with starts and permits moving up in April. With respect to the outlook for prices, the situation even before the recent sharp drop in crude oil prices was benign, with core consumer and producer prices expected to move up by only 0.1% in April. Beyond April, there is a distinct possibility that top-level prices will move down, while core prices are not expected to see any significant change in direction. Will the inflation hawks at the Fed finally stand down?
KEY U.S. DATA RELEASES THIS WEEK
Tuesday, May 18 – Housing Starts and Building Permits (Apr.)
Housing Starts
- IHS Global Insight: 0.645 Mil.
- Consensus: 0.650 Mil.
- Last Actual: 0.626 Mil. (Mar.)
Building Permits
- IHS Global Insight: 0.691 Mil.
- Consensus: 0.677 Mil.
- Last Actual: 0.680 Mil. (Mar.)
What to Look For
- Housing starts are expected to rise by 3.0%, while building permits should be up 1.6%.
Implications
The second homebuyers' tax credit, which expired on April 30, was not the only reason new home sales surged in March. An improving labor market also played a role. Going forward, job growth and low inventories of new homes should translate into rising starts/permits (although housing starts will remain below normal levels for the next two years). For April, we project respective increases in housing starts and permits of 645,000 and 691,000 (annual rates).
Tuesday, May 18 – Producer Price Index (Apr.)
Total
- IHS Global Insight: -0.4%
- Consensus: 0.1%
- Last Actual: 0.7% (Mar.)
Core
- IHS Global Insight: 0.1%
- Consensus: 0.1%
- Last Actual: 0.1% (Mar.)
What to Look For
- Overall prices for finished goods are expected to decline 0.4% in April.
- Core prices are expected to inch up 0.1%.
Implications
Energy prices, including gasoline, should retreat around 1.8%, while food prices will likely retreat 0.4% after March's 2.4% jump. Excluding food and energy, core producer prices should inch up 0.1%. March's surging jewelry prices will not repeat, but neither will the drag from falling vehicles prices.
Wednesday, May 19 – Consumer Price Index (Apr.)
Total
- IHS Global Insight: 0.0%
- Consensus: 0.1%
- Last Actual: 0.1% (Mar.)
Core
- IHS Global Insight: 0.1%
- Consensus: 0.1%
- Last Actual: 0.0% (Mar.)
What to Look For
- Headline prices should remain flat in April.
- Core prices, excluding food and energy, likely to be up 0.1%.
Implications
Food prices should push higher, but lower gasoline and natural gas prices will hold down the CPI headline reading. Pump prices rose in April, but less than normal for the time of year, which translates into a seasonally adjusted decline.
