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A deluge of economic data, corporate earnings and Federal Reserve rhetoric is set to descend on the docket in the week ahead, as investors continue to contend with a host of global uncertainties.

Among the long list of releases, the U.S. Census Bureau and IHS Markit are each scheduled Thursday to unveil fresh retail sales and manufacturing figures, respectively.

Retail Sales (Mar)

Retail sales reports have generally yielded erratic results, after the partial government shutdown, which ran from December 22, 2018 through January 25, 2019, waylaid data collection and processing.

While February’s decline of 0.2% month-over-month came in weaker-than-expected, sentiment was somewhat bolstered by January’s upward revision from an increase of 0.2% to a rise of 0.7%. The latest gauge also provided the market with some optimism, after the 1.2% drop in December from the previous month, which was accompanied by a downward revision for the October-November period.

Jefferies economists Ward McCarthy and Thomas Simons recently noted that based on the data, “retail sales ended 2018 abysmally and began 2019 extraordinarily.” However, they said they “strongly suspect that these unusual readings in December and January have more to do with the post-shutdown data quality than reality.”

Jefferies also pointed out that while the preliminary University of Michigan Consumer Sentiment report for April showed a deterioration in the index to 96.9 from 98.4 in the prior month, the index is consistent with the range that it held prior to the steep declines in confidence in January and February, which emanated from the government shutdown and its effects on financial markets.

Auto and housing sector concerns

Although consumer sentiment appears to remain squarely in positive territory, certain cracks appear to be seeping through – notably in the auto and housing sectors.

The University of Michigan’s surveys of consumers chief economist Richard Curtin characterized the latest gauge of consumer confidence as a “sideways shuffle” – posting an “insignificant decline” in early April following the “small gain” recorded in March.

Curtin observed that the impact of the tax reform legislation on consumer confidence “has all but disappeared,” with the data suggesting that “consumers thought that its stimulative impact on the overall economy has now run its course.”

He added that what has been of “increasing importance to consumers are rising nominal incomes, and low inflation, producing strong gains in inflation adjusted incomes.” However, “consumers have increasingly voiced complaints about rising vehicle and home prices, and slight declines in unit sales of both markets are anticipated in 2019.”

Against this backdrop, the SPDR S&P Retail ETF (NYSEARCA: XRT), which has among its top holdings auto-related stocks Carvana (NYSE: CVNA), CarMax (NYSE: KMX) and Advance Auto Parts (NYSE: AAP), has seen a drop in its value of more than 26.7% from its latest 52-week high set in August 2018 through December 24, 2018. It has since picked up only by around 17.6% from its December low.

Consumer discretionary sector shares have fared better, with the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY), which has among its top holdings Amazon.com (NASDAQ: AMZN) and Home Depot (NYSE: HD), having staged a new 52-week high intraday Friday.

IHS Markit Manufacturing PMI (Flash – April)

Elsewhere, investors Thursday will also receive a flash update from the IHS Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) for April after the March reading fell 0.6 month-over-month to 52.4.

According to IHS Markit, a “key factor” behind the lower headline figure was a slower rise in output, while the rate of expansion decelerated to the weakest pace since June 2016 and the slower increase in production due to “softer underlying client demand.”

Chris Williamson, IHS Markit’s chief business economist, said that “further deterioration in the manufacturing PMI suggests the factory sector is acting as an increasing drag on the US economy,” and that the March survey fell in line with the 0.6% fall in the quarterly rate of production.

He added that “things may well get worse before they get better, as the forward-looking indicators are a cause for concern.

“New order growth has fallen close to the lows seen in the 2016 slowdown, often linked to disappointing exports, tariffs and signs of increasing caution among customers. The ratio of new orders to existing inventory has meanwhile fallen to its lowest since June 2017, suggesting the production trend may weaken further in April.”

Corporate Earnings underway

Activity in the week ahead is also set to include first quarter earnings updates on a slew of companies, as the season shifts into higher gear.

Big banks Goldman Sachs Group (NYSE: GS) and Bank of America (NYSE: BAC) are poised to announce their results in the front part of the week, with Morgan Stanley (NYSE: MS) on the radar for Wednesday, after JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) each topped market expectations.

Other names on the roster include Netflix (NASDAQ: NFLX), PepsiCo (NASDAQ: PEP) and General Electric (NYSE: GE).

Fed Talk

On the monetary policy front, a throng of Fed-speak is once again on tap, following the Federal Open Market Committee’s (FOMC) recent decisions to maintain the target range for the federal funds rate at 2.25-2.5%, with no plans in 2019 to hike interest rates further, as well as to cease other quantitative tightening measures, including ending its US$4trn balance sheet shrinkage in September.

In the minutes to its monetary policy meeting in March, the FOMC – the Fed’s policymaking body – reiterated it will be “patient” as it determines what future adjustments to the target range for the federal funds rate may be appropriate – in light of global economic and financial developments and “muted inflation pressures.”

Among other U.S. central bank officials, regional Fed presidents Eric Rosengren, Patrick Harker, James Bullard and Raphael Bostic are each slated to grace their respective podiums across the country.

Market participants will likely be looking for any signals about a potential recession on the horizon following the recent inversion of the yield curve.

Fitch Solutions observed that there “appears to be a high level of uncertainty as to when a recession could strike.

“Indeed, several yield curve-based models continue to suggest that the U.S. (and hence, most likely, the global economy) could fall into recession any time between late 2019 and early 2021.”

When the yield curve inverts – when long-term rates fall below short-term rates – a recession typically ensues. This scenario has included the past two recessions, which occurred in 2001, as well as from 2007 to 2009.

Since the latest inversion of the 3m/10y curve, which had reverted to positive at the end of March, investors have been busy speculating about the FOMC’s path of monetary policy normalization, and whether the two rate hikes that were once on the table for 2019 could end-up being a cut instead.

Meanwhile, the calendar in the week ahead is chalk full of events:

Monday, April 15

Earnings

  • Goldman Sachs Group (Q1’19)

Econ

  • New York Empire State Manufacturing Index (Apr)

Fed: Chicago president Charles Evans (12 – 2:00pm)

  • New York Association for Business Economics
  • Cornell Club of New York

Fed: Boston president Eric Rosengren (8:00pm – 9:30pm)

  • Economics Department Cornelson Lecture at Davidson College
  • Chambers Lilly Family Gallery
  • Davidson, North Carolina

Tuesday, April 16

Earnings

  • Bank of America (Q1’19)
  • BlackRock (Q1’19)
  • Johnson & Johnson (Q1’19)
  • Netflix (Q1’19)
  • UnitedHealth Group (Q1’19)

Econ

  • Redbook
  • Manufacturing, Industrial Production & CapU (Mar)
  • NAHB Housing (Apr)
  • API Crude Oil Stocks

Wednesday, April 17

Earnings

  • Morgan Stanley (Q1’19)
  • PepsiCo (Q1’19)
  • SLM Corp (Q1’19)
  • Textron (Q1’19)

Econ

  • MBA Mortgage Applications
  • Trade Balance (Feb)
  • Wholesale Inventories (Feb)
  • EIA Crude Oil Stocks

Corporate

  • AMC Entertainment Holdings Analyst Day

Fed – Beige Book (2:00pm)

Fed – Philadelphia president Patrick Harker (11:30am – 1:30pm)

  • Greater Vineland Chamber of Commerce (GVCC) Luncheon

Fed – St. Louis president James Bullard (12:30pm – 1:30pm)

  • 28th Annual Hyman P. Minsky Conference on the State of the U.S. and World
  • “Financial Stability, Economic Policy, and Economic Nationalism”
  • Levy Economics Institute of Bard College 
  • Annandale-on-Hudson, New York

Thursday, April 18

Earnings

  • American Express (Q1’19)
  • Baker Hughes, a GE Co. (Q1’19)
  • General Electric (Q1’19)
  • Honeywell (Q1’19)
  • Schlumberger (Q1’19)

Econ

  • Initial Jobless Claims
  • Retail Sales (Mar)
  • Philadelphia Fed Manufacturing (Apr)
  • Markit Services PMI (Flash – Apr)
  • Markit Manufacturing PMI (Flash – Apr)
  • Business Inventories (Feb)

Fed – Atlanta president Raphael Bostic (11:30am)

  • Economic Roundtable of Jacksonville
  • Federal Reserve Bank of Atlanta – Jacksonville Branch
  • Jacksonville, FL

Friday, April 19

Econ

  • Existing Home Sales (Mar)

 

The analysis in this material is provided by Interactive Brokers for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by Interactive Brokers to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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Steven Levine

Steven Levine is a Senior Market Analyst at Interactive Brokers, (IBKR), which provides online trade execution and clearing services to institutional, professional and individual investors for a wide variety of electronically traded products including stocks, options, futures, forex, bonds, CFDs and funds worldwide.

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