Not only was Friday the halfway mark for the month of August, but it was also the halfway mark for the current quarter. Like many rivers and streams, what started off as a strong week twisted and turned and, as often happens, it morphed into something weaker than first expected -- as a result of the initiatives by China to devalue their currency, global growth concerns on the back of falling oil prices (with supply AND demand at work), and last-minute trepidation on the Greek bailout. It appears the Greek bailout will happen, but we won't know for certain until Germany signs off next week.
Our take is that China is facing a weaker manufacturing economy inside the country. The currency devaluation aims to spur net export demand while also making securities on the stock market even cheaper. The latter, of course, is a move help stem the fall in Chinese stocks. As the saying goes, we've seen this movie more than a few times: The currency devaluation is a page right out of former Fed chair Ben Bernanke's QE playbook ¿ and the one used by the European Central Bank and more than two dozen other countries during the first half of 2015. Has China fired its stimulative bazooka? We'll find out in the coming months, but at a minimum growth expectations will have to be reset.
One quick comment to set the stage for the next two weeks. The last two weeks of August tend to be littered with vacations -- you can ask Lenore all about that when she gets back. For those of us that will be in the saddle, expect lower trading volumes -- particularly as each week comes to a close, and that could mean exaggerated price moves on just modest news. Be careful.
Let's turn our gaze to the week ahead, and as we do let's remember that on Friday we received July readings for the Producer Price Index and Industrial Production. Despite the uptick in July prices, a longer view showed that over the 12 months through July, PPI fell 0.8%, after declining 0.7% in June. It was the sixth straight 12-month decrease in the index, and it puts the Fed in a tough spot to boost rates, in my opinion. Offsetting that was a stronger than expected July Industrial Production report, but as we all know, one month does not make a trend and it's important to cross-examine data from various sources.
To us, that means looking at the flash PMI reports that will hit next Friday, as they will add more points on the line that marks the tempo of the manufacturing economy. Not quite the kind of late-summer reading most would want, but then again, we never said we were normal people. Below the headlines, it will be the order figures that clue us in to how September will be shaping up.
Ahead of those reports, we have several housing data points, including July Housing Starts and the National Association of Home Builders' Housing Market Index for August. More insight on pricing is to be had, this week -- this time on what consumers faced in July. With gas prices flat, we're looking for only a modest tick up, similar to the move in the July PPI reading.
Normally, we -- and most investors -- would be at-the-ready to parse the FOMC minutes on Wednesday. And while we will be digging through that release, we think it will have less punch than usual, thanks to the latest in China and falling oil prices. Despite what the Fed talking heads may have suggested, we see the Fed treading cautiously given those factors and other data. In other words, we stick with our "late in 2015" timetable -- should a rate hike come in 2015, at all.
As much as you may be wishing we were done with quarterly earnings, there are still a lot of names to report this week. Although we will see a dramatic drop in the number of companies reporting, think quality over quantity, as many of the big retail companies -- Target (TGT), Wal-Mart (WMT), Dick's Sporting Goods (DKS), Home Depot (HD) and many others -- report. The combination of Dick's and Foot Locker (FL) will either temper or bolster Back-to-School spending expectations and offer a view on what's to come from Under Armour (UA) and Nike (NKE).
Other Back to School commentary will be had from Target, Wal-Mart, American Eagle (AEO) and other apparel vendors. Keep in mind the disappointing results from Macy's (M) and Kohl's (KSS) -- as well as The Gap's (GPS) pre-announcement, and it's not looking particularly bright. If you want exposure to retail in your portfolios, we would share the advice from the knight in Indiana Jones and the Last Crusade: "Choose wisely." Our recommendation would be to stay out of the fray.
Outside of retail, we have Hewlett Packard (HPQ) and Salesforce.com (CRM) as well as "food with integrity" companies, Hain Celestial (HAIN) and The Fresh Market (TFM), on deck. Following quarterly results for Whole Foods (WFM) and Sprouts Farmers Market (SFM), which both cited the impact of growing competition from conventional rivals, we are less-than-bullish on what The Fresh Market has to say. If anything, that comment by Sprouts bodes well for United Natural Foods (UNFI) in growing its non-Whole Foods client base.
Here's the shortlist of companies that we'll be tuning into this week:
-- Monday: Estee Lauder (EL), Urban Outfitter (URBN)
-- Tuesday: Dick's Sporting Goods (DKS), Hain Celestial (HAIN), Home Depot (HD), TJX Companies (TJX), Wal-Mart Stores (WMT),
-- Wednesday: American Eagle Outfitters (AEO), Hormel Foods (HRL), Lowes (LOW), Target (TGT)
-- Thursday: Buckle (BKE), Cato (CATO), Salesforce.com (CRM), Gap (GPS), Hewlett Packard (HPQ), Regis (RGS), Ross Stores (ROST), Sears (SHLD), Stein Mart (SMRT), Fresh Market (TFM)
-- Friday: Deere & Co (DE), Foot Locker (FL),
The larger list of companies reporting their earnings in the week ahead can be found here at The Street's weekly earnings calendar.
Below is a more detailed look at the economic data in the week ahead. Normally we'd say catch Lenore each Monday on America's Morning News and check back for our midweek column, but Lenore is on vacation this week. Versace will still be around sharing his views and will finish off the week with his turn on America's Morning News on Friday.
| Economic Calendar: Aug. 17 - Aug. 21 |
| Date | Release |
| 17-Aug | Empire Manufacturing |
| 17-Aug | NAHB Housing Market Index |
| 17-Aug | Net Long-Term TIC Flows |
| 18-Aug | Housing Starts |
| 18-Aug | Building Permits |
| 19-Aug | MBA Mortgage Index |
| 19-Aug | CPI |
| 19-Aug | Core CPI |
| 19-Aug | Crude Inventories |
| 19-Aug | FOMC Minutes |
| 20-Aug | Initial Claims |
| 20-Aug | Continuing Claims |
| 20-Aug | Existing Home Sales |
| 20-Aug | Philadelphia Fed |
| 20-Aug | Leading Indicators |
| 20-Aug | Natural Gas Inventories |
| 21-Aug | Nikkei Flash Japan Manufacturing PMI |
| 21-Aug | Caixin Flash China General Manufacturing PMI |
| 21-Aug | Markit Flash France Composite PMI |
| 21-Aug | Markit Flash Germany Composite PMI |
| 21-Aug | Markit Flash Eurozone Composite PMI |
| 21-Aug | Markit Flash US Manufacturing PMI |
