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Financial Markets
Summary For The Week of September 29-October 3
The week of
September 29-October 3 will see very important data that will provide
information on the condition of the consumer and the labor sector. The major
data risk for the week will occur with the Monday release of the August
personal and income statement and the Friday publication of the September
estimate of non-farm payrolls. We look for modest declines in real spending
and a loss of -105K payrolls with the unemployment rate increasing to 6.2%. Tuesday
will see the release of the September Chicago PMI, estimate of consumer
confidence by the Conference Board and total vehicle sales. The Institute for
Supply Management estimate of activity in the manufacturing sector will be
published on Wednesday and their read of service sector activity will be
released on Friday. Thursday will see the release of weekly claims and
factory orders.
 
Fed Talk
After a very
eventful few weeks, the market will have an eye on Fed talk during the
upcoming week. On Monday Kansas City Fed President Thomas Hoenig will speak
on the economy and monetary policy. St. Louis Fed President Bullard will speak
on Friday, time and topic TBA.
Personal
Income/Spending (August) Monday 08:30 AM
Our forecast implies
that on a nominal basis income and spending should see a modest 0.1 increase
and no change respectively. However, on an inflation adjusted basis, we
anticipate that spending should see the third straight negative posting and
arrive down at -0.3% for the month. With personal disposable income looking
to see a third straight month of contraction the condition of the consumer is
looking more precarious. While consumer have observed some relief due to
falling gasoline prices, it has not been sufficient to stimulate an increase
in retail sales. Our forecast of personal consumption for Q3'08 stands at
-1.0%.
PCE Deflator
(August) Monday 08:30 AM
The Fed's preferred
measure of inflation should see a modest increase in the core rate. Our
forecast implies a month over month increase of 0.2% and the annualized rate
should advance 2.5% for the month. With the near catastrophe in the financial
system, the Fed will not be focused on price stability for the foreseeable
future. Price stability in the near term is still a function of past monetary
policy and the run up in headline costs. We expect to see core rates continue
to build over the next few months. However, should aggregate demand contract
or demand for commodities resume their recent downward trend, we could see
headline and core inflation peak sometime later this year. Nevertheless, due
to the increase in Federal spending on the back of the bailout of the U.S. financial system, we do believe that conditions are being put in place that will
stimulate a long term move in inflation well above the current implied target
range of the Fed.
Chicago PMI
(September) Tuesday 09:45 AM
The estimate of
manufacturing activity in the upper Midwest should see a second consecutive
month of solid gains. Our forecast implies a reading of 54.0 on the back of
another month of strong new orders and production to meet foreign demand. Yet,
the 54.0 forecast does suggest slower growth than was seen in August and it
is an open question whether purchasing managers sentiment can remain elevated
under conditions of weakening consumption and the ongoing problems in the
auto sector. Even amidst of falling input prices, we think that the severe
disturbance in the domestic system of credit should weigh heavily on the
minds of purchasing managers concerned over access to capital. Thus, the risk
for the month is to the downside.
Consumer Confidence
(September) Tuesday 10:00 AM
An interesting
confluence of events should provide a test of the durable psyche of the
consumer. Although, the cost of gasoline provided a brief source of support
to consumer confidence, the recent near shutdown of the domestic system of
credit and the proposed $700bln bailout by the U.S. Treasury should offset
whatever positive change in consumer sentiment that had been building. We
expect a modest decrease in sentiment to 55.0 for the month and major
downside risk throughout the remainder of the year.
Domestic Vehicle Sales
(September) Tuesday-Throughout The Day
The condition of the
consumer and uncertainty over the economic outlook should continue to dampen
enthusiasm for purchases of vehicles, whatever their national origin in
September. The double barrel blast of a weakening labor sector and
disturbance in the system of credit should again offset the aggressive
discounting to clear inventories on the part of automakers. We expect the
sale of domestic vehicles to fall to 10.1mln and total vehicle sales to
decline to 13.3mln.
ISM National
Manufacturing (September) Wednesday 10:00 AM
The ISM's estimate
of national manufacturing conditions should see a sideways move in September
with firms seeing a positive turn in the cost of commodities, but a modest
decline in export orders and a very soft environment in domestic demand. Our
forecast implies that both new orders and production activity should see
downward movement and suggests that risk for the month is to the downside
Initial Jobless
Claims (Week ending Sep 27) Thursday 08:30 AM
Jobless claims
should see a slight moderation to 470K for the week ending September 27. The
four-week moving average inside the initial claims series has continued to
climb steadily over the past several weeks. We think that the headline should
see a modest adjustment downward, but the overall trend in the series should
continue to move upward. As conditions in Texas and Louisiana adjust, we do
expect to see some moderation in the headline, but the continuing claims
series will continue rise.
Factory Orders
(August) Thursday 10:00 AM
After five straight
months of gains in factory orders on the back of demand from the external
sector and orders for civilian aircraft, we expect to see a decline in the
headline of -4.1%. Orders at Boeing for the month remain weak and demand for
durable goods should see a modest decline after two very strong postings.
Non-Farm Payrolls
(September) Friday 08:30 AM
The labor sector
should continue to see another month of declines. Our forecast implies that
the establishment survey should see a decline of -105K and the household
estimate should see an increase in the rate of unemployment to 6.2%. We
expect to see an outsized decline of -50K in the manufacturing sector, along
with continuing declines in the goods producing, construction and service
sector. We expect that the positive contributions to the payroll situation of
the healthcare and government sectors will be more than offset by the
contraction in the aforementioned areas of the economy and the risk of further
deterioration in both the headline and unemployment rate during the month
should not be discounted.
ISM
Non-Manufacturing (September) Friday 08:30 AM
Our forecast of
service sector activity in September suggests that the headline should
moderate to 50.0 on the back of a deteriorating labor sector and outlook
among the consumer. Indicators of personal consumption in the
non-manufacturing sector for the month all imply a further decrease in
overall spending among consumers. With personal disposable income falling
over the past two months consumers are not well positioned to increase
discretionary spending on non-essential items.
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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