Today is a data-heavy morning with key reports released on inflation, the housing market and the employment situation at 8:30 am ET. All three could influence whether the stock market continues to put in record highs or whether this historic run will be reversed with the latter consistent with my expectations for a 10%+ correction in the second or third quarters of this year. Gold and the dollar are likely to be impacted as well with each report providing some potential clues on whether and when the Fed may taper its $85 billion/month bond-buying program not to mention the health of the anemic economic recovery.
Most important to me is the building permits number for April considering that it is a forward-looking gauge on the economy and the housing market. It's very important that this number hits investor expectations of 3.9% month-on-month to think the housing recovery can stretch into the summer considering March's weak report of -3.9% month-on-month. Housing starts for April will come out at the same time with investors looking for 970,000 and down from March's 1,036,000. This is below the psychologically important one million mark and this may put added pressure on the leading indicator found in the building permits data. Any weakness in these reports will likely send the dollar and stocks lower and perhaps gold higher.
CPI will be watched closely by most investors as a possible tell on whether and when the Fed may taper its controversial $85 billion/month bond buying program with consensus calling for Core Consumer Price Index (CPI) to come in at -0.3% for April from March's -0.2% and Ex-Food and Energy CPI of 0.2% for April from March's 0.1%. This is of less importance to me because it seems unlikely that one month of CPI data has little sway over Fed policy at this point. It will be interesting to watch the reaction in the dollar and in gold with the former up 2.8% in about a week in trading action that has put a 6.3% dent in the yellow metal over this same time period. It is less likely to have too much impact on the stock market unless the data comes in very different than expectations.
Lastly, initial jobless claims for the week of May 11 cannot be ignored, but it's hard for me to get too excited about this ongoing read on the labor market considering its frequent revisions. Investors are expecting initial jobless claims of 330,000 versus the prior period's 323,000 and this is non-factor for me unless it is significantly different than expectations. It is this possibility that makes it a key watch as a potential influence on the Fed's bond-buying program and the direction of the dollar, gold and stocks but only if it is dramatically higher or lower than its recent range and something that seems unlikely in the current environment.
--Abigail Doolittle, Technical Strategist, The Seaport Group
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