Forex Investment and Currency Trading

The week ahead includes a fair amount of economic data, the highlights being May retail sales, April business inventories and the latest instalment of the Federal Reserve’s Beige book. On Thursday, the Fed will also release Q2 Flow of Funds figures which should confirm an ongoing destruction of household wealth, given poor equity market performance and ever-lower home prices. Several Fed official speakers are on tap, though the calendar begins to wind down ahead of the upcoming FOMC meeting on 23-24 June. At the end of the week, Treasury Secretary Geithner will head to Italy to join the G-8 group of finance ministers who are likely to discuss the government budget and management of future deficits.

Claims could print a 5-handle but set to pick up again
Initial unemployment claims are likely to fall to 580k on 1 June – the first break below 600K since mid-January. Investors will welcome this news with open arms but some caution that more volatile seasonal factors and accelerating layoffs in the auto industry are set to boost claims well above 600k a week later. The balance of June is likely to include ongoing prints in the mid-600ks, before a more consistent moderation in claims unfolds, as accelerated cuts in the auto industry are offset by fewer layoffs elsewhere. Separately, the number of ongoing benefit claimants is expected to rise by 24k to 6.76 million after a surprise drop in last week’s figures, and the first such decline since the first week in January. After first breaking above 4.7 million to new record highs 19 weeks ago, we are still a far cry from any meaningful “improvement” in the pool of those unemployed.

Retail sales likely positive in May but “control” flat
Retailers are expected to report a sluggish gain of 0.4% mom in May boosted by increases in both gasoline sales (on higher prices) and auto sales. Excluding these two categories, sales should be down 0.1% mom for the third straight monthly decline. Market anticipates broad-based declines in sales of discretionary items, while basic goods categories (food and healthcare) continue to benefit. Such themes were echoed in recent chain store sales figures where declines were reported in clothing, home furnishing and luxury goods retailers. Retail “control” (components from this report that feed directly into consumer spending) sales are forecast to be flat implying that real consumption growth is still on track to drop 1.2% qoq in Q2 after a 1.6% gain in Q1.

Beige Book to show ongoing recession with rays of light
The Fed’s latest Beige Book findings (due on Wednesday), covering anecdotal evidence on the state of the economy, is expected to show ongoing malaise in the manufacturing, housing, consumer and investment sectors. The results will cover mid-April to late May in preparation for the upcoming FOMC meeting. While the nation is still mired in recession, most will be gleaning the text for “green shoots” references, which we anticipate will be the hallmark of this report.