Key U.S. Data Release and Events

Consumer sentiment is expected to remain mired at a 28-year low in mid-July, however, raising concerns about the outlook for the third and fourth quarters.

Finally, Treasury Secretary Paulson and Fed Chairman Ben Bernanke will provide testimony on financial regulation to the House on July 10. We do not expect any discussion of policy, but rather the session will focus on the issue of broadening the Fed's supervisory authority to include the investment banks. This broadening has already moved ahead on a "de facto" basis under the Fed's expanded discount facility for the investment dealers, so the real issue at this juncture is why, how, and when legislators should make it "de jure." Our sense is that Congress will move in this direction and ratify the Fed's recent actions by an act of Congress, but the timing on this is an open question.

KEY U.S. DATA RELEASES THIS WEEK

Friday, July 11 – Trade Balance (May)

Global Insight: -$62.8 Billion
Consensus: -$62.4 Billion
Last Actual: -$60.9 Billion (Apr.)

What to Look For

• The trade deficit is expected to widen further, to $62.8 billion, in response to higher imported oil prices.

Implications

Oil imports probably fell in volume, but were sharply higher in price, so likely rose about $2 billion in value. Although the nominal trade deficit is rising, the direct contribution of trade to growth is determined by export and import volumes, and here the picture is very different. We expect export volumes to rise 7.4% in the second quarter, and import volumes to fall 2.5%, so that trade overall makes a large 1.4-percentage-point contribution to expected second-quarter GDP growth of 1.8%.

Friday, July 11 – Michigan Consumer Sentiment Index (Preliminary July)

Global Insight: 56.0
Consensus: 55.5
Last Actual: 56.4 (final, Jun.)

What to Look For

• The preliminary reading for July will remain mired at more than a 28-year low of near 56.0.

Implications

The Reuters/University of Michigan Index of Consumer Sentiment is expected to hold at 56.0 in early July, little changed from the 28-year low of 56.4 recorded in June. Consumer attitudes simply can't get much worse. In early July, consumer finances were battered by rising gasoline prices, falling stock prices, and news of more job losses. Fiscal-stimulus payments will continue to provide a lift to spending during the summer months, but a downturn in real consumer spending is likely this autumn.