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U.S. Economic
U.S. EconomicResearch
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Economic data continues to surprise on the upside, leading forecasters to increase growth Contents:
expectations through the end of the year. The upcoming retail sales release is expected to add
further evidence of reaccelerating economic activity and is the highlight of the week. Other data Economic Overview 2
will cover manufacturing, housing and inflation.
Interest Rates 2
Q3 GDP growth looks to be revised up from the initially reported 2.0% Q/Q SAAR, while Upcoming Economic 3
expectations for Q4 GDP have risen to 2.3% Q/Q SAAR. Releases
The Index of Leading Indicators is expected to accelerate, supporting a reacceleration in Commitment of Traders 9
GDP growth.
Full U.S. Economic 10
Calendar
The 4.3% rise in unit auto sales suggests a substantial gain in retail sales, but slower same-
store sales could indicate weakness in ex-auto retail sales. International Economic 11
Calendars
Global PMIs suggest that manufacturing activity continues to expand, which should help this Disclaimers 12
weeks Industrial Production and Empire and Philadelphia Fed releases.
The core CPI is expected to fall to 0.7% Y/Y, a 49-year low. However, headline inflation Team Mailbox:
remains higher due to food and energy price inflation. Ally.Economics@ally.com
Economic Overview
Q3 GDP growth looks to be revised up from the initially Global PMIs suggest that manufacturing activity continues to
reported 2.0% Q/Q SAAR, while expectations for Q4 GDP expand, which should help this weeks Industrial Production
have risen to 2.3% Q/Q SAAR. The upcoming business and Empire and Philadelphia Fed releases. A rebound in utility
inventories release could add further to Q3 GDP, following production following its 1.9% M/M decline in September should
strong growth in wholesale inventories. also help Industrial Production.
The Index of Leading Indicators is expected to accelerate, The core CPI is expected to fall to 0.7% Y/Y, a 49-year low.
supporting a reacceleration in GDP growth. Growth in leading The current trend in core inflation in both the CPI and finished
indicators is being driven by the interest rate spread, which is goods PPI remains weak. However, food prices continue to
likely to add 0.2 percentage points (pp), after adding 0.3 pp in advance, driven by higher food commodity prices. In addition,
September. Also adding to October Leading Indicators are a energy prices rose in Octoberwholesale gasoline prices rose
4.4% increase in equity prices, a 0.2% increase in 9.9% M/M and retail gasoline prices rose 3.5% M/M.
manufacturing hours worked and an expansion in the money
supply. Housing data is expected to show that the market for new
homes remains weak. Housing starts are expected to fall 1.6%
The 4.3% rise in unit auto sales suggests a substantial gain in M/M and homebuilder sentiment will continue to indicate poor
retail sales, but slower same-store sales could indicate conditions for new construction despite the expected one point
weakness in ex-auto retail sales. increase.
Interest Rates
Yields were unable to hold their low levels from last week at bid-to-cover in almost a year at 2.31. The thirty-year has
the long end of the yield curve, as markets waited for the Fed underperformed as of late as Fed purchases in the sector look
to ramp up its Treasury purchases. In the week after the Feds to be lighter than those of shorter maturities. This past week,
announcement, the Fed purchased $11 billion of additional the 30-year yield closed above 4.20% for the first time since
Treasuries, which is below the announced $75 billion per June.
month pace. The Feds schedule of Treasury purchases looks
to add $105 billion of Treasury purchases from November 12th For the week, the two-year Treasury yield rose 14 bps to
to December 9th, making up for the slow kick off to QEII. 0.50%, while the 10-year Treasury yield rose 25 bps to 2.79%.
These purchases seem to be especially heavy in the seven to The 2s10s spread widened to 2.28% from 2.16% the prior
10-year sector compared to issuance. week. The 3-month TED (LIBOR-Treasury) spread fell 1 bps
16 bps. Further out the curve, 10-year swap spreads were
Even with a gap between the Feds announcement and the unchanged at 14 bps. Corporate credit risk spreads widened
ramp up of its purchases, the market had trouble digesting new on the week according to the Markit CDX North American
supply this past week. The 30-year auction saw the weakest Investment Grade Index.
1.00%
U.S. Benchmark Rates Key Spreads
0.50%
FF Effective 0.22% 0.20% 0.02% 2/10s 2.28% 2.16% 0.12%
FF Target 0.25% 0.25% 0.00% TED Spread 0.16% 0.17% -0.01% 0.00%
Prime 3.25% 3.25% 0.00% LIBOR - OIS 0.10% 0.10% 0.00% 1M 3M 12M 2Y 3Y 5Y 10Y
11/5/10 11/12/10
Source:AllyEconomics,Bloomberg(11/12dataasof4:00pm)
Y/Y % Change
M/M% Change
than ex-auto sales as unit auto sales rose 4.3% M/M in October 2%
to their highest level for the year. There is downside risk for -1% 0%
sales ex-auto and gas as same-store sales decreased by 0.7% Consensus -2%
M/M. -2%
-4%
-6%
-3%
-8%
-4% -10%
May-09
May-10
Nov-08
Mar-09
Apr-09
Aug-09
Nov-09
Mar-10
Apr-10
Aug-10
Oct-08
Dec-08
Jan-09
Feb-09
Jun-09
Jul-09
Sep-09
Oct-09
Dec-09
Jan-10
Feb-10
Jun-10
Jul-10
Sep-10
Oct-10
M/M % change (LHS) Y/Y % change (RHS)
Sources: Ally Economics, Haver Analytics (Census)
Prior: 15.73 30
-30
-40
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Jan-06
Jul-06
Oct-06
Jan-07
Jul-07
Oct-07
Jan-08
Jul-08
Oct-08
Jan-09
Jul-09
Oct-09
Jan-10
Jul-10
Oct-10
Sources: Ally Economics, Haver Analytics (Federal Reserve Bank New York)
Business Inventories
Business Inventories (SEP)
1.5% 10%
Cons: 0.6% M/M
Prior: 0.6% M/M 1.0%
5%
0.5%
0%
Total business inventories rose 0.6% M/M in August. The total 0.0%
Y/Y%
-0.5% -5%
remaining at 1.26 for two consecutive months. Automotive
inventories rose 1.3% M/M in August, following a 3.3% M/M -1.0%
-10%
decline in July. -1.5%
-15%
-2.0%
Business inventories, together with the September wholesale Consensus
inventory data released last week will be watched to assess the -2.5% -20%
May-10
Nov-08
Mar-09
Nov-09
Mar-10
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
M/M% C hange
Y/Y% C hange
3%
PPI is expected to have risen 0.8% M/M driven by a 9.9% M/M 0.2%
3%
rise in wholesale gasoline prices and a likely continued rise in 0.0%
2%
finished food prices, which rose 1.2% M/M in September. The
crude PPI index rose 20.3% Y/Y in September, showing the -0.2% 2%
-0.6% 0%
Apr-08
Aug-08
Apr-09
Aug-09
Apr-10
Aug-10
Oct-07
D ec-07
Feb-08
Jun-08
Oct-08
D ec-08
Feb-09
Jun-09
Oct-09
D ec-09
Feb-10
Jun-10
Oct-10
M/M [LHS] Y/Y [RHS]
Sources: Ally Economics, BLS
Long-Term TIC Flows may have moderated in September from 150 110
Augusts $128.7 billion as the dollar declined. However, banks'
Index (Jan-97=100)
own net dollar-denominated liabilities to foreign residents 100 105
Level (Billion $s)
-100 85
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-05
Jan-06
Jul-06
Oct-06
Jan-07
Jul-07
Oct-07
Jan-08
Jul-08
Oct-08
Jan-09
Jul-09
Oct-09
Jan-10
Jul-10
Oct-10
Net Long-Term TIC FLow s (LHS) Trade-Weighted Dollar (RHS)
Sources: Ally Economics, Haver Analytics (Federal Reserve, Treasury)
Y/Y%
-5% -15%
Apr-09
Aug-09
Apr-10
Aug-10
Oct-08
Dec-08
Feb-09
Jun-09
Oct-09
Dec-09
Feb-10
Jun-10
Oct-10
20
10
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Oct-01
Oct-02
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Sources: Ally Economics, Haver Analytics (NAHB)
20%
Housing Starts are expected to have fallen 1.6% M/M in 40%
15%
October. Building Permits are expected to have increased M/M
to 570K. Both permits and starts remain near their series lows. 20% 10%
M/M %
0%
suggests that starts will remain well below their ten year 0%
average of 1,500K for an extended time period. -20% -5%
-10%
-40%
-15%
-60% -20%
May-09
May-10
Nov-08
Mar-09
Apr-09
Aug-09
Nov-09
Mar-10
Apr-10
Aug-10
Sep-08
Oct-08
Dec-08
Jan-09
Feb-09
Jun-09
Jul-09
Sep-09
Oct-09
Dec-09
Jan-10
Feb-10
Jun-10
Jul-10
Sep-10
Oct-10
M/M % change (RHS) Y/Y % change (LHS)
Sources: Ally Economics, Census Bureau
The core CPI is expected to have risen a trend-like 0.1% M/M 0.20%
2.0%
in October. The headline CPI is expected to have risen 0.3% 0.15%
M/M% C hange
Y/Y% C hange
M/M driven by a 3.5% M/M rise in retail gasoline prices and a 0.10%
1.5%
likely continued rise in food prices, which rose 0.3% M/M in 0.05%
September. The core CPI is expected to fall to 0.7% Y/Y, which 0.00%
1.0%
would be a 49-year low. -0.05%
-0.10% 0.5%
-0.15%
-0.20% 0.0%
Apr-08
Aug-08
Apr-09
Aug-09
Apr-10
Aug-10
D ec-07
Feb-08
Jun-08
Oct-08
D ec-08
Feb-09
Jun-09
Oct-09
D ec-09
Feb-10
Jun-10
Oct-10
Prior: 1.0 20
(SA, %)
month. Inventories and unfilled orders were the only two sub- -10
indexes to decline M-M.
-20
-30
-40
-50
May-06
May-07
May-08
May-09
May-10
Nov-05
Aug-06
Nov-06
Aug-07
Nov-07
Aug-08
Nov-08
Aug-09
Nov-09
Aug-10
Nov-10
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Sources: Ally Economics, Federal Reserve Philadelphia
8% 4%
The Index of Leading Indicators is expected to have risen 0.5%
6% 3%
M/M in October. Leading growth is the interest rate spread,
4% 2%
which is likely to add 0.2 percentage points (pp), after adding
Y/Y %
Y/Y %
0.3 pp in September. Also adding to October Leading 2% 1%
-6% -3%
-8% -4%
-10% -5%
Oct-00
Oct-01
Oct-02
Oct-03
Oct-04
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Leading Indicators [LHS] Monthly GDP [RHS]
Sources: Ally Economics, Haver Analytics (Conference Board, Macroeconomic Advisers)
The Federal Reserves announcement of further Treasury purchases attracted comments not only from foreign officials but also some
domestic political figures. Yet, in the week after the Feds announcement, the Fed purchased $11 billion of additional Treasuries, which
is below the announced $75 billion per month pace. The Feds schedule of Treasury purchases looks to add $105 billion of Treasury
purchases from November 12th to December 9th, making up for the slow kick off to QEII.
Attention turned to the Irish sovereign risks during the week. Patrick Honohan, the Governor of the Central Bank of Ireland, did not quell
market concerns when he said, I sense a concern in the market that some other problems might be hiding somewhere.
Aside from the reemerging sovereign debt concerns, there is growing friction over the value of the dollar. ECB President Trichet has
avoided criticizing the Feds expansion of Treasury purchases. However, German Finance Minister Schaeuble told Der Spiegel, Its
inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress dollar exchange
rate by printing money. Therefore, the political pressure on the ECB to criticize the Fed is likely to grow.
The BOEs Inflation report stated, Inflation is likely to stay above the 2% target throughout 2011, given the forthcoming rise in
VAT and continuing increases in import prices. As the impact of those factors on inflation diminishes, inflation is likely to fall
back, reflecting continuing downward pressure from the persistent margin of spare capacity. With regard to GDP the report
noted that GDP is likely to slow from Q3s 0.8% Q/Q growth and output is likely to remain significantly below the level implied
by a continuation of its pre-recession trend.
The unemployment rate declined to 7.9% in October, matching its post-recession low. Ahead of the CPI release on November 23rd,
Bank of Canada Governor Carney has avoided making comments on monetary policy.
Chinese Vice Finance Minister Zhu Guangyao said, Around the world we have $10 trillion of hot money flowing around, more than the
$9 trillion in hot money at the beginning of the global financial crisis. [The U.S.] has not fully taken into consideration the shock of
excessive capital flows to the financial stability of emerging markets.
After Chinas trade surplus reached a three-month high of $27.15 billion, the PBOC raised the reserve ratios by 0.5 percentage points
effective November 16. For large banks this will raise the reserve ratio to 18%.
10
20
30
40
50
60
70
80
90
$50
$55
$60
$65
$70
$75
$80
$85
$90
$95
$100
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
11/12/2008
11/12/2008 11/12/2008
12/12/2008
1/12/2009
1/12/2009 1/12/2009
2/12/2009
3/12/2009
3/12/2009 3/12/2009
9/12/2009
9/12/2009 9/12/2009
10/12/2009
11/12/2009
11/12/2009 11/12/2009
12/12/2009
1/12/2010 1/12/2010 1/12/2010
2/12/2010
3/12/2010 3/12/2010 3/12/2010
4/12/2010
5/12/2010 5/12/2010
Select Financial Market Indicators
5/12/2010
Fig. 1 VIX at 20.7, decreased by 2.5 for the week
6/12/2010
7/12/2010 7/12/2010 7/12/2010
8/12/2010
Fig. 2 EUR/USD at 1.37, the EUR fell by 2.7% for the week
10/12/2010
8
Index (Jan 1, 2010 = 1) Bps . $/Troy oz.
board
0
50
100
150
200
250
0.84
0.88
0.92
0.96
1.00
1.04
1.08
1.12
1.16
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
1/8/10 11/12/2008
1/15/10 11/12/2008
1/22/10
1/29/10
2/5/10 1/12/2009
2/12/10 1/12/2009
2/19/10
2/26/10 3/12/2009
3/5/10 3/12/2009
6/4/10
6/11/10 11/12/2009
11/12/2009
6/18/10
6/25/10
7/2/10 1/12/2010
7/9/10 1/12/2010
7/16/10
7/23/10
7/30/10 3/12/2010 3/12/2010
8/6/10
8/13/10
8/20/10
8/27/10 5/12/2010
9/3/10
9/10/10
11/12/2010
11/12/10
Ally Economics
Ally Economics
U.S. Economic Research
Two-year Treasuries (Net Non-commercial Long Positions) Ten-year Treasuries (Net Non-commercial Long Positions)
300,000 700,000
600,000
200,000
500,000
400,000
100,000
300,000
0 200,000
100,000
-100,000
0
-100,000
-200,000
-200,000
-300,000 -300,000
May-08
May-09
May-10
May-08
May-09
May-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
S&P 500 (Net Non-commercial Long Positions) Dollar Index (Net Non-commercial Long Positions)
60,000 50,000
40,000
40,000
30,000
20,000
20,000
Net Long Positions
Net Long Positions
0 10,000
-20,000 0
-10,000
-40,000
-20,000
-60,000
-30,000
-80,000 -40,000
May-08
May-09
May-10
May-08
May-09
May-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Sources: Ally Economics, CFTC Sources: Ally Economics, CFTC
Light Sweet Crude Oil (Net Non-commercial Long Positions) Gold (Net Non-commercial Long Positions)
250,000 350,000
300,000
200,000
250,000
Net Long Positions
150,000
200,000
150,000
100,000
100,000
50,000
50,000
0 0
May-08
May-09
May-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
May-08
May-09
May-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Jan-08
Jul-08
Sep-08
Jan-09
Jul-09
Sep-09
Jan-10
Jul-10
Sep-10
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