I think we are already seeing the beginnings of this in the financial sector, and Citigroup (NYSE:C) was just the latest company to announce a cut last week. It's going to be a gradual thing of course, but with an exponential growth rate. Maybe we'll start to see regional banks or large U.S. banks join the ranks of corporate cutters HSBC and Citigroup soon. Disappointing earnings reports provide the right kind of cover for such moves and we'll get some important reports this week from the likes of Wachovia (NASDAQ:WB), Washington Mutual (NYSE:WM), Wells Fargo (NYSE:WFC), Bank of New York (NYSE:BK), Bank of America (NYSE:BAC) and US Bancorp (NYSE:USB).
Rising gasoline and food prices are no easy swallow, and persistent inflation and solid employment only portend higher rates and more difficult mortgage payments for home owners/consumers. The service sector is our weight bearing wall here. We can't lose that. All we need now is a geopolitical catalyst to send emerging markets careening. Iran fits the bill. Let's zoom in a little and look at the week ahead.
With an early first look last week, most expect the March retail sales report to provide pleasant news on Monday. Bloomberg's poll shows expectations for a 0.9% rise in sales, ex-autos, and 0.6% increase if you include them. I would call it an ailing segment if Toyota wasn't doing so well, but...
The 8:30 report of the Empire State Manufacturing Index is seen reaching a measure of 10.0, according to Bloomberg. Last month's expectations were gravely disappointed when the index measured 1.9, versus expectations for a reading of 16. Domestic manufacturing is weak and the market knows it, so a poor reading shouldn't move the market dramatically lower, in my view. The business inventories report at 10:00 is likely to be an important driver for the market, as an improved inventory to sales ratio would satisfy bulls. Inventories are seen rising 0.3% month to month.
In the early afternoon, the National Association of Home Builders provides its Housing Market Index. The consensus view expects a reading of 35 on the figure. In any event, the insiders have not proven prescient, but it looks like they have finally all swallowed the reality pill, so maybe it will be worth a look. Dallas Fed President Richard Fisher will have a microphone and an audience on Monday, so keep your ears attuned.
A slew of economic reports will get us started on Tuesday. At 8:30, the Consumer Price Index release will garner all attention for signs of that nasty inflation nuisance. Bloomberg's consensus sees a rise of 0.6% on the headline figure and 0.2% on the core number. Need we repeat that the Fed is closely watching inflation? If this figure is heavy and Q1 GDP shows better than expected growth later this month, the market is likely in for a long summer. That said, Tuesday's news has the potential to turn that resilient bullish sentiment negative on its own if the figure exceeds the consensus estimate. Also an 8:30 news breaker, March housing starts hit the wire with a consensus view for 1.49 million. This could help to confirm the early reports of a weak spring selling season.
While you are still swallowing the CPI and housing news, 9:15 brings March Industrial Production and Capacity Utilization, with consensus expectations for no change in production and utilization of 81.9%, compared to 82% in February.
Tuesday's Fed tour features New York Fed Chief Timothy Geithner at a dollar/euro conference. On this last day for tax filing, expect earnings reports from Johnson & Johnson (NYSE:JNJ), IBM, Wells Fargo WFC), U.S. Bancorp (USB), Yahoo! (NASDAQ:YHOO), Washington Mutual (WM), EMC and Intel Corporation (NASDAQ:INTC).
Wednesday's busy earnings calendar includes Motorola, JP Morgan Chase, Abbott Labs, United Technologies, Kraft Foods, Ebay, Allstate, Gilead Sciences, and the Bank of New York. CIBC's energy conference kicks off in Toronto on Wednesday, and the large IPO of MetroPCS Communications is planned.
Wednesday's oil & distillates inventory report may show further capacity usage at refineries eating into crude stocks, verifying the driver for higher oil prices of late.
On Thursday morning, initial weekly jobless claims are expected to decline to 320,000. The Philly Fed Survey follows New York's report, with expectations set for an index measure of 1.0, after only reaching 0.2 last month and disappointing consensus views for 5.0. Most will be eagerly anticipating the U.S. Conference Board report of March Leading Indicators at 10:00 a.m. Bloomberg's consensus sees growth of 0.2%, after a decrease of 0.5% last month.
On Thursday, look for earnings reports from Bank of America, Altria Group, Google, Merck & Co., Merrill Lynch, Wyeth, UnitedHealth
Group, American Express, Schering-Plough, Baxter International, Capital One Financial, and Union Pacific Corp.
Behemoth earnings reporters on Friday include Schlumberger, McDonald's, Caterpillar, and Honeywell International. Hank Paulson could stir up trade concerns when he discusses China in a Washington assembly. Also, Fed Governor Frederic Mishkin will speak about the topic of U.S. and global economies.