Stocks will likely take a pause today given the almost empty domestic economic calendar and soft data out of China over the weekend. It will likely be hard to sustain the strong momentum from last week given the absence of meaningful economic data this week, particularly with stocks already in record territory.
China released a bunch of economic data over the weekend and it mostly came on the weak side. The data pertained to retail sales, inflation, and industrial production – and all three key measures disappointed. Part of the weakness could be a result of the Lunar New Year falling in February this year compared to January last year, but the softness is evident even when the two-month data is combined. Any way you look at it, it is a slower start to 2013 than would be expected from the year-end 2012 momentum.
Rising inflation and slowing growth produces its own policy dilemma for the incoming Chinese leaders who will need to balance price stability and economic growth. Economic growth rebounded to a 7.9% pace in the last quarter of 2012 and appears on track to be a little above 8% in the current period, but will likely come down in the coming quarters.
On the home front, the key data point this week is the February Retail Sales report coming out on Wednesday. Anecdotal evidence from retailers like Wal-Mart (WMT) and Target (TGT) doesn’t paint a very inspiring picture of household spending, but part of that was likely due to delayed income tax refunds due to Fiscal Cliff related issues. On the positive side, payroll gains have been quite strong, as last week’s February jobs report confirmed. The key point is that consumer spending was good enough in the fourth quarter of 2012, but it’s unclear if the momentum carried into 2013 due to the payroll tax hike, higher gasoline prices, and drag from fiscal austerity.
Other reports this week include Industrial Production and the New York Fed’s Empire State regional manufacturing survey on Friday. The factory sector data should show relatively more momentum to reflect the need for inventory replenishment following the weak run on that count later last year.