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Raymond James’ Scott Brown: Pay attention to next week’s calendar

Stocks finished mixed in a see-saw session on Thursday.

The following is a daily market commentary by Scott J. Brown, chief economist and senior vice president of equity research at Raymond James & Associates Inc.

Thursday: Stocks finished mixed in a see-saw session.
The economic data were uneventful. Treasuries finished mixed following a strong 30-year bond opening. (View data here.)
Initial claims for state unemployment insurance benefits fell about as expected last week. A Labor Department spokesperson indicated that there were no special factors. The four-week average was 475,500 – still consistent with some weakness in overall labor market conditions, but nothing like we were seeing a year ago (when the four-week average was 646,750).
The U.S. trade deficit narrowed unexpectedly in January as both imports and exports fell (-1.7% and -0.3%, respectively). P etroleum imports fell 3.1% (+48.9% y/y, due to higher prices). (View chart here.)
Domestic nonfinancial debt rose at a $1.116 trillion in 2009, as a$1.444 trillion increase in government debt was partly offset bya $237 billion decline in household debt and a $200 billion decline in nonfinancial business debt. Domestic financial debt fell by $1.753 trillion. That is, even with the huge increase in government debt, U.S. debt (public and private) fell (thanks largely to a massive deleveraging in the financial system).
Today: Retail sales figures are expected to be mixed, but soft overall. There may be some market reaction, depending on how much of a surprise we see in the numbers, but attention should turn toward next week’s calendar.
Unit motor vehicle sales fell on a seasonally adjusted basis last month. Chain-stores sales results were mixed, but generally better than expected. Hence, overall retail sales should appear soft. Still, February is essentially a throwaway month, a transition between January clearance and March spring sales. Figures for the next couple of months will be more important.
The Federal Open Market Committee meets next Tuesday (just a one-day meeting this time). The Fed funds target rate is almost certain to remain unchanged (given the previous statement that conditions were expected to warrant exceptionally low interest rates for an extended period), but there’s some question about whether the Fed’s Board of Governors might raise the discount rate again; it will at some point, but the timing is uncertain. Moreover, such a move would not be expected to lead to tighter credit for consumers and businesses. Investors will be sensitive to any changes in the wording of the Fed policy statement, but there’s likely to be little difference from the previous statement.
There will also be plenty of economic data for the markets to chew on next week and given the seasonal adjustment and weather effects, there’s a good chance for a surprise. Industrial production (Monday) is likely to have been dampened by the heavy snow. Residential construction figures (Tuesday) are also likely to see some weather effects. The inflation reports (PPI on Wednesday, CPI on Thursday) should be moderate, with a modest decline in gasoline and mild core inflation at the consumer level (held back by weakness in rents).

For more commentaries by Dr. Brown, go to rjcapitalmarkets.com/eco_commentary_240_main.asp.