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Financial Markets
Summary For The Week of November 10-14 2008
The week ahead in
financial markets will see a modest quantity of data that will hit the tapes
largely on Thursday and Friday. The major market moving events will be the
Friday release of the October advance retail sales data and the Thursday
release of the US Trade Balance, Jobless Claims and the US Budget Statement. On
Friday in Frankfurt Germany, Fed Chair Bernanke and ECB President Trichet
will lead a cast of global central banking all-stars that will address
monetary policy within the current global financial crisis.
 
Fed Talk
The week in Fed talk
will see Ben Bernanke and ECB President Jean-Claude Trichet speak as part of
a panel discussion on monetary policy at a conference hosted by the ECB in Frankfurt, Germany. Bank of Israel Gov. Fisher, People's Bank of China Deputy Gov. Su Ning
and Banco de Mexico Gov. Ortiz will also participate on the panel on Friday
November 14. The week will kickoff with Treasury's interim assistant
secretary for financial stability Neel Kashkari addressing the troubled asset
relief program on Monday. Minneapolis FRB President Stern will speak on both
Wednesday and Thursday, topics TBA. Thursday will see Philadelphia Fed FRB
President Plosser speak on the economic outlook.
US Trade Balance
(September) Thursday 08:30 AM
The trade balance
for September should see one final month of solid gains on the back what was
still decent demand from the external sector for US goods and services. Our
forecast implies a decline in the deficit to $57.4bln for the final month of
the third quarter. Across purchasing managers surveys, demand from the
external sector held up rather well all things considered, and even the
disappointing factory orders for the month, saw a pick up in orders for farm
machinery that almost surely was a function of demand from abroad. On a real
basis, the fall in the cost of imported oil will drive the real goods balance
and the ex-petroleum component towards lows not seen in recent years.
Jobless Claims (Week
Ending November 8) Thursday 08:30 AM
The week ending
November 8 should see another increase in continuing claims that should push
the tally towards 3.90mln and the headline should increase to 485K. With the
impact of the Gulf Coast hurricanes moving out of the series, the underlying
trend should continue its slow march towards 500k. The primary focus of our
analysis continues to be the fact that unemployed workers are facing a
deteriorating labor market which is necessitating a much longer stay on the
benefits rolls for a much longer period of time.
US Budget Statement
(October) Thursday 10:00 AM
Given the
extraordinary response of the federal government outlays to address the
financial crisis and the sharp deceleration in overall economic activity have
created the conditions whereby the market should ready itself for a fiscal
year of unusually sharp increases in the operating deficit. Of particular
importance will be the pace of decline in the total receipts, which were down
-1.7% year over year through the end of the fiscal year 2008. We anticipate a
swing from the $45.72bln surplus in September to a -$125bln deficit in
October.
Import Price Index
(October) Thursday 08:30 AM
The decline in
commodity prices during the month of October was the worst single monthly
performance in nearly 52 years. This development should underlie a third
straight month of declines in inflation via the import channel. Our forecast
implies a decline of -4.2% on a monthly. On an annual basis, we expect to
observe an increase of 12.62%, down from the 14.5% posted in September.
Advance Retail Sales
(October) Friday 08:30 AM
The 3.1% contraction
in real personal consumption in the third quarter of 2008 provides a vivid
illustration of the consumer led recession that still has some miles to go
before it reaches its completion. Consumers are in the process of building up
cash reserves for the trouble ahead and the near death spiral in auto sales
provides a fair amount of insight into what we expect to see in the rate of
personal consumption in the near term. We anticipate that the nadir for the
current contraction in overall economic output will be the final quarter of
2008 and we expect to see that demonstrated in the advance retail sales data.
Our forecast implies that retail sales will see a -2.2% decline month over
month and the core ex auto, will fall -1.4% over that same interval.
University of Michigan
Consumer Sentiment Survey (November) Friday 10:00 AM
Given the recent
turbulence in financial markets, the acceleration of job cuts and the ongoing
tightening of credit should combine to send the preliminary estimate of
consume sentiment to recent lows in the survey. We think that the real
problems in the economy and the concern over the trajectory of unemployment
will outweigh the election of a new US President and the fall in gasoline
prices and consumer sentiment should fall to 54.
Business Inventories (September) Friday
10:00 AM
One of the troubling
developments that have accompanied the decline in real personal consumption
has been the in increase in inventory to sales ratios in the macro data of late.
The inventory ratio inside the August business inventories report stands at
1.27 months, which is exactly where it stood one year ago, before the market
observed a inventory inspired contraction in overall output. The context of
the current ratio of inventory to sales, is that of a contraction in real
personal consumption and is one of the factors behind our very bearish
estimate of a decline in overall growth in the fourth quarter of -4.1%. We
expect to see business inventories increase 0.2% in September, followed by a
significant period of constrained growth in inventories.
Joseph Brusuelas
Chief Economist
VP Global Strategy
Merk Investments LLC
Merk Investments LLC is the manager
of Merk Mutual Funds, including the Merk Asian Currency Fund and the Merk
Hard Currency Fund. The Merk Asian Currency Fund invests in a basket of Asian
currencies. Asian currencies the Fund may invest in include, but are not
limited to, the currencies of China, Hong Kong, Japan, India, Indonesia,
Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
The Merk Hard Currency Fund invests
in a basket of hard currencies. Hard currencies are currencies backed by
sound monetary policy; sound monetary policy focuses on price stability.
The Funds may be appropriate for you
if you are pursuing a long-term goal with a hard or Asian currency component
to your portfolio; are willing to tolerate the risks associated with
investments in foreign currencies; or are looking for a way to potentially
mitigate downside risk in or profit from a secular bear market. For more
information on the Funds and to download a prospectus, please visit www.merkfund.com.
Investors should consider the
investment objectives, risks and charges and expenses of the Merk Funds
carefully before investing. This and other information is in the prospectus,
a copy of which may be obtained by visiting the Funds' website at www.merkfund.com or calling 866-MERK
FUND. Please read the prospectus carefully before you invest.
The Funds primarily invest in
foreign currencies and as such, changes in currency exchange rates will
affect the value of what the Funds own and the price of the Funds' shares.
Investing in foreign instruments bears a greater risk than investing in domestic
instruments for reasons such as volatility of currency exchange rates and, in
some cases, limited geographic focus, political and economic instability, and
relatively illiquid markets. The Funds are subject to interest rate risk
which is the risk that debt securities in the Funds' portfolio will decline
in value because of increases in market interest rates. The Funds may also
invest in derivative securities which can be volatile and involve various
types and degrees of risk. As a non-diversified fund, the Merk Hard Currency
Fund will be subject to more investment risk and potential for volatility
than a diversified fund because its portfolio may, at times, focus on a
limited number of issuers. For a more complete discussion of these and other
Fund risks please refer to the Funds' prospectuses.
This report was prepared by Merk
Investments LLC, and reflects the current opinion of the authors. It is based
upon sources and data believed to be accurate and reliable. Opinions and
forward-looking statements expressed are subject to change without notice.
This information does not constitute investment advise nor a solicitation or
an offer to buy or sell any products or services. Foreside Fund Services,
LLC, distributor.
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