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Financial Markets
Summary For The Week of September 8-12
The week of
September 8-12 will see a heavy week of US macro data. Inflation will be at
the forefront with import prices and producer prices released on Thursday and
Friday, while the advance retail sales estimate for August to close out the
week figures to be the primary market moving release of the week. The week
will kick off with the Tuesday publication of the July pending home sales
release. The majority of the data for the week will be published on Thursday,
which will also see the release of the July trade balance, weekly jobless
claims and US monthly budget statement. Friday will also see the publication
of the University of Michigan's preliminary estimate of consumer sentiment
for September.
 
Fed Talk
The only Fed speaker scheduled for the week is FRB Dallas President Fisher,
who will speak in Austin, Texas, topic and time TBA on Monday, September 8. The
remainder of the week falls under the traditional blackout period on Fed talk
ahead of the September 16 FOMC meeting.
Pending Home Sales
(July) Tuesday 10:00 AM
Pending home sales for July should fall -1.3% after a strong 5.3% uptick in
June. The modest increase in sales activity during the summer months of 2008
has been fueled by purchases of foreclosed homes in the existing stock of
houses. According to the National Realtors Association, up to 40% of all
homes purchased in the existing home sales report fall under that category. This
number will probably have to increase given the quantity of Alt-A and prime
borrowers that are expected to see their homes enter into foreclosure over
the coming months. Some cash buyers and other well positioned consumers may
find good opportunities to re-enter the housing sector over the next several
months, but we do not think in the short-term that this will be sufficient to
clear the outsized level of inventories currently on the market.
Trade Balance (July)
Thursday 08:30 AM
The price of West Texas intermediate crude oil hit its recent peak on July 14
at $146.13 per barrel. This should provide a bit of a drag on the recent
improvement in the trade deficit. We expect that deficit should increase
modestly to -$58.5bln for the month. However, the real dollar goods balance
should continue to see modest declines and the external sector should
continue to provide support for overall economic activity during the third
quarter of 2008.
Import Prices
(August) Thursday 08:30 AM
US inflation indicators should see their first sign of relief reflecting the
decline in headline costs. We expect that import prices will fall -0.7% the
month vs. the previous 1.7% increase in July. On an annual basis, import
prices should show a 19.8% increase. The primary catalyst behind the August
headline decline should be the fall in petroleum costs.
Initial Jobless
Claims (Week ending Sep 7) Thursday 08:30 AM
Initial claims should fall back slightly to 440K during the upcoming week. Over
the next several weeks look for the weekly claims series to be quite volatile
on the back of dislocation in the labor sector due to the series of
hurricanes that look to hit the Southeast portion of the United States.
US Budget Statement
(August) Thursday 2:00 PM
The US budget statement should continue to spill red ink again in August,
when our forecast suggests that the deficit should grow to -$107.1bln for the
month. The combination of increased outlays, falling tax revenues that final
rebate checks being cashed should push the deficit higher for the second
straight month.
Producer Price Index
(August) Friday 08:30 AM
The market will focus on what we expect to be a decline of -0.4% m/m in
headline costs for producers. This improvement, which should be driven by the
fall in oil costs, has been widely priced in to expectations. However, we
note that core prices can be expected to rise 0.3% m/m and 3.8% y/y in
additional the 10.2% annual increase in headline prices. For the past several
months we have pointed out the risk due to rising total intermediate costs,
which are up 16.6% annually on a headline basis and 10.2% in the core. Fueling
this rise has been the 23.9% increase in the cost of material for non-durable
manufacturing, 36.4% cost of processed fuels and lubricants and 12.5% advance
in the cost of materials for durable manufacturing. We do not think that
these costs will be receding anytime soon and the risk of inflation into the
core will continue for some time even as headline costs continue to abate. Most
importantly, this is what led the Kansas City, Chicago and Dallas Fed
regional banks to ask for a 25 basis point hike in the discount rate to 2.5%.
According to the three Fed regional banks "higher input costs were being
passed through to product prices and that inflation expectations had risen
and judged that the upside risks to inflation were of greater concern than
the downside risks to growth."
Advance Retail Sales
(August) Friday 08:30 AM
The retail sales environment during the month of August should reflect the
increasing strains that have become quite visible on the consumer. With the
impact of the stimulus fading and a lackluster late summer sales season in
the auto and back to school sales, we think that overall sales should see a
tepid increase of 0.1% in the headline and a -0.2% in the core, with risk to
the downside in both. Anecdotal reports from retailers do not bode well for
the series and the typical later summer surge associated with the fall school
season looks to have failed to materialize. Should the Redbook and retail
chain reports come in below our modest expectations, we will revise down our
forecast accordingly.
University of Michigan Consumer Confidence (September) Friday 08:30 AM
The recent decline in the price of gasoline should continue to provide
support to consumer confidence, which seems to have reached cyclical lows
during June. The preliminary September estimate of consumer sentiment should
rise to 63.9 as the recent fall in headline prices is passed through to
consumers in the guise of cheaper prices for energy. We think that the modest
outbreak in optimism is likely to be transitory once consumers, especially
those in the Northeast and upper Midwest, turn their attention to the cost of
heating oil and electricity costs during the upcoming winter months ahead.
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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