Earnings Announcements: Novellus (NVLS)

The first set of announcements to pay attention to are the housing figures for January, which come out simultaneously on Wednesday morning. Both the Building Permits and Housing Starts are expected to post declines from December.

Last month, both reports missed estimates by about 50k units. I’ve got to think that this month will come in lower than estimates by at least that amount. It seems no matter how low the estimates, the housing market will still disappoint.

On Thursday, we have the PPI and Core PPI figures for January.  For the first time since last July, expectations are for an increase in the PPI. This could be due to a number of factors, such as an increase in energy prices, but the concerning one would be inflation. Could the Fed monetary policy finally be catching up with us? Time will tell.

The same holds true for the CPI estimate that is announced on Friday along with the Core CPI reading. For the first time since last July, the CPI reading is expected to increase. Since this reading includes energy costs, it could be simply due to the slight increase in gas prices recently. That would be the preferred reason, anything but dreaded inflation.

The final report of interest this week is the Philadelphia Fed announcement on Thursday. Unfortunately, the report is expected to show further decline in the manufacturing sector in the Tri-State area. In order for the economy to turn around, every manufacturing report, including this one, needs to start showing an increase in production.

Source: Are We Starting To See Inflation Creep Up?

With that being said, the calendar this week is full of some important reports that could set the tone for the early part of next year.

On Tuesday, the Building Permits report for November is released, and is anticipated to show only a slight decline of around 8k units. I am not sure if this is simply due to the seasonal slowdown of building in northern climates, or if perhaps builders have finally found an equilibrium point with the market, but I view it as a positive sign if the number holds close to expectations.

The same can be said about the November Housing Starts report that comes out at the same time. A decline is expected, but again, it could just be do to seasonal issues (you can’t build in northern climates when the ground is frozen) rather than a worsening housing sector.

The big reports of the week are the November CPI and Core CPI figures.  Much like last week’s PPI and Core PPI reports, the Core CPI figure is expected to show a slight increase while the CPI figure will likely show a continued drop. Energy costs (oil) continue to drop, and this will be reflected in the CPI figure.

The Philly Fed report comes out Thursday morning, and it looks like reality has set in again. As I reported last month, expectations for the November report were for a rather large improvement versus October. Well not only did that not come true, but the report was actually worse than October. This month, expectations are for a slight decline.

The attention grabber this week is the FOMC Policy Statement on Tuesday. As it stands, expectations are for a huge rate cut. Currently the Fed Funds rate is 1.00%, and the probability chart shows a 65 percent chance of a cut down to 0.25%. This is especially shocking for two reasons. One is the shear size of the cut, which would be three-quarters of a percent. The second aspect is that if the cut is down to 0.25%, it leaves only one more bullet left in the gun for the Fed to cut rates.

Source: FOMC Statement Highlights The Week … Will The Fed Be Left With One Bullet?

The euro is now poised to test $1.60, a technically and psychologically critical level.

A slew of numbers was released yesterday. The Labor Department reported that the consumer price index rose 0.3% in March, in line with economists’ expectations. The closely-examined core CPI, which excludes energy and food, rose by 0.2%, also matching estimates.

That inflation wasn’t higher is significant, says Stephen Gallagher, economist for Societe Generale. “Concerns of rising inflation remain high, but recent core gains remain moderate,” Gallagher said. “The evidence of significant pass-through from food and energy prices is still low. If inflation expectations are kept under control by such evidence, then the Fed has a freer hand to cut rates.”

Separately, the Commerce Department said housing starts plunged 11.9% in March to a seasonally adjusted annual rate of 947,000, the lowest level in 17 years. Building permits also fell to a 17-year low.

In the one bright note, the Fed said output at the nation’s factories, mines and utilities rose by 0.3% in March, the fastest pace in four months. That was far better than economists’ expectations that production would fall by 0.1%.