Market Analysis

The movement lower in rates over the past several weeks has been primarily a result of the belief that the economy is slowing and the recovery is at risk. Investors are now trying to understand whether or not rates have been driven too low even with such weakening. As such, today, even with a NY regional manufacturing index coming in weaker than expected, bonds have a slight negative bias, suggesting current rate levels have already built in a significant amount of expected future bad news. Stocks are up this morning. Global equity markets improved today on Japan reporting a smaller than expected 2nd Qtr GDP contraction.

Below is a recap of this week's key economic data:

Monday, August 15

• August Empire (NY) Manufacturing Index - came in down 7.7 compared to down 3.76 last month and vs expectations for a .4 decrease. The prices paid subcomponent also came down which suggests inflation risks are abating. The future general business conditions index dropped twenty-four points to 8.7, its lowest level since February 2009, and the future new orders and shipments indexes, while positive, fell to near-record lows, exceeded only by their September 2001 readings. The capital expenditures index was also down sharply.

Tuesday, August 16

• July Housing Starts & Building Permits - Starts expected 608,000 annualized pace, down from a 629,000 pace in June. Permits expected down to a 606,000 annualized pace vs a 624,000 pace in June.
• July Industrial Production and Capacity Utilization - Production expected up .4% vs up .2% in June. Utilization expected up to 77.0% vs 76.7% in June.

Wednesday, August 17

• July Producer Price Index (PPI) - expected 0% change vs a .4% decline in June with the Core Rate (excluding food and energy) expected up .2%.vs a .4% increase in June.

Thursday, August 18

• Initial Jobless Claims for the week ended 8/31/11 - expected 400,000 vs 395,000 for the prior week
• July Consumer Price Index (CPI) - expected up .2% vs down .2% in June. Excluding food and energy, Core CPI is expected up .2% vs up .3% in June.
• July Existing Home Sales - expected annualize d pace of 4.875 million, up from pace of 4.77 million in June.
• August Philadelphia Fed Index - expected up 1.0 vs up 3.2 in July.
• July Leading Indicators - expected up .2% vs up .3% in June