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June 06, 2008

Merk Economic Calendar: Week Ahead In US Financial Markets (June 9-13 2008)
by Joseph Brusuelas

Financial Markets Summary For The Week of June 9-13
Fed Chair Ben Bernanke will headline a major week of Fed talk when he speaks at conference on inflation on Monday evening. The market will be closely observing his keynote address to see if the Fed chair follows up on his recent remarks to support the value of the dollar. The major market moving reports for the upcoming week in US financial markets will be the Thursday release of the advance retail sales report and the Friday publication of the CPI, both of which will cover the May sampling period. We expect that the primary emphasis of the market will be the efficacy of the fiscal stimulus package and just how much of the recent rise in headline and core prices that the CPI captures. Beyond the top tier data, the week will kick off with the April pending home sales report and the following day will see the April trade data. Wednesday will feature the publication of the Fed beige book and the US budget statement for May. The May import price report and jobless claims will supplement the release of the retail sales data Thursday and the week will end with the aforementioned release of the CPI data and the University of Michigan's consumer sentiment data on Friday.

Fed Talk
The week of June 9-13 will see a heavy week of Fed talk. The week will kick off with a speech by NY Fed President Geithner on the economic outlook mid-day on Monday. Tuesday will see Boston Fed President Rosengren provide the opening remarks before a research conference on inflation, where Fed Chair Bernanke will give the keynote address Tuesday evening. The very hawkish Dallas President Richard Fisher will speak on globalization and monetary policy Wednesday morning. Fed Gov. Mishkin will moderate a panel on inflation that same day in Boston. Thursday will see a Cleveland Fed President Pianalto and Fed Gov. Kroszner will speak on community development mid-day.

Chart Of The Week

Pending Home Sales (April) Monday 10:00 AM
Pending homes sales for April will likely provide another, in a long line of indicators that the housing crunch is far from over. The 11 months of inventory of existing homes and the very difficult future faced by the building community are but a few of the major economic issues that will be with us long after financial markets begin functioning normally. Potential purchasers of homes are correct to remain quite wary of entering in agreements to purchase given the necessary decline in the price of homes to clear the large quantity of inventory on the books. The whisper campaign underway by the development community that some micro-areas of the real estate market have turned the corner should be taken with more than a bit of skepticism. We expect that pending sales will fall -1.3% for the month.

Trade Balance (April) Tuesday 10:00 AM
A weak dollar should continue to buttress a sagging economy that without the robust demand from the external sector would have contracted through the first three months of the year. Our forecast implies that the nominal deficit should see improvement for the month of April arriving at -$57.1bn vs. the -$58.2bln previously. We expect that foreign demand for in the goods sector, specifically for semiconductors, electronics and telecommunications equipment should be quite brisk for the month. The benefits of a flexible and open economy should be on display during a month when we expect to see continued improvement in the trade deficit between the US and the Pacific Rim countries which at this point should begin to trickle into the debate over free trade underway in the US election

US Budget Statement (May) Wednesday 2:00
The general slowdown in the economy should generate an outsized decline in tax receipts for the May reporting period when we expect to see a -$174.1bln operating deficit. Moreover, with government spending activity on the upswing in an attempt to offset the housing induced case of the blues that currently afflict consumers we do think that the risk for the series is to the upside.

Fed Beige Book (May) Wednesday 2:00
With the economy moving sideways showing no signs of recovery, but not in a condition resembling collapse, the market will be looking to the beige book for hints on regional conditions regarding the state of personal consumption, the housing sector and the pricing environment. We anticipate that the beige book will indicate that the housing sector continues to act as a deadweight and consumption ex-gasoline is sluggish at best. Outside of the external sector, the economy saw negative growth through the first three months of the year and the primary question outstanding going forward is whether the rebate checks will offset the sharp rise in the cost of gasoline and food over. In our estimation, the rise in gasoline prices has reduced the power of the rebates and we expect to see growth in Q2 arrive at 1.7, down from our provisional estimate of 2.1%.

Import Prices (May) Thursday 8:30
The weak dollar and the surge in demand for commodities and energy has been the primary catalyst behind the rise in the cost of imported goods. Given the most recent increase in the aforementioned categories we expect that the month over month reading to advance 2.7% and the annual basis to increase 15.1% for the May sampling period. It is our estimation that import prices, as a factor in inflation, is being underestimated at this point. We believe that the recent rebound in the value of the dollar will prove transitory, and long term structural adjustment downward in the value of the greenback will act as a catalyst for inflation beyond what is currently priced in by the market.

Advance Retail Sales (May) Thursday 8:30
The first real test of the efficacy of the fiscal stimulus out of Washington will be on display when we see the advance retail sales report for the month of May. Through the end of the sampling period, the US Treasury sent out $45.46 billion in rebate checks, which should provide a net boost to overall sales. With auto sales inching up for the month, after a dismal April, we expect that the stimulus should provide enough of an offset to the rising cost of gas and food to generate a 0.6% increase in headline sales and a 0.8% rise in the core rate. However, we do think that the risk is to the downside and the Spending Pulse report of a -6.0% decline in demand for retail gasoline that could weigh quite heavily on the overall report.

Initial Jobless Claims (Week Ending 7 June) Thursday 8:30
We expect that initial claims will tend back towards the top of its range to 365K for the week ending 7 June. The labor market, much like the economy is moving sideways at the moment, with no decisive catalyst provide a breakout in either direction over the horizon. Our year-end estimate of 5.5% in the rate of unemployment still stands and the recent 3.093mln posting in the continuing claims data supports that forecast.

Consumer Price Index (May) Friday 8:30
After a very modest increase in both headline and core inflation in April, the market will be focused on any possible revisions to data after seasonally adjusted inspired -2.0% decline in the cost of gasoline. Our skepticism regarding the current state of the data is a matter of record and we will not delve on it further here. Over the next few months the data will begin to capture the increase in the core costs that most individuals have begun to observe and are behind our assessment that inflation will continue to rise throughout the remainder of 2008. For us, just as important is the relative increase in the cost of food that hit a record 5.1% in April and is poised to continue to increase at near record levels in May. Food represents 13.8% of the cost of living for the median consumer and the combination of the sharp increase in the cost of food and energy has begun to change the consumptive behavior of the individual. Our forecast implies that headline CPI will advance 0.5% m/m and 3.9% y/y. The core will increase 0.2% m/m and 2.3% y/y for May with the risk for the trading day to the upside.

University of Michigan Consumer Sentiment (June Preliminary) Friday 10:00
We do not expect any improvement in the very bearish condition of consumer sentiment anytime soon. For sometime we have made the case that consumer sentiment has become quite sensitive to changes in the cost of gasoline. At this point, the cost of petroleum has increased so sharply, it is stimulating a further change in behavior. According to the US Department of Transportation miles driven has fallen 4.3%. The Department of Transportation reports that demand for petroleum is down 3.9% and the Spending Pulse report on credit card spending stated that demand for retail gasoline dropped 6.0%. It is little wonder that the estimates of consumer sentiment across the board are touching decade long lows. We expect the headline to fall to 56.1 for the preliminary June estimate.

Joseph Brusuelas
Chief Economist
VP Global Strategy
Merk Investments LLC

Bridging academic rigor and communications, Joe Brusuelas provides the Merk team with significant experience in advanced research and analysis of macro-economic factors, as well as in identifying how economic trends impact investors. As Chief Economist and Global Strategist, he is responsible for heading Merk research and analysis and communicating the Merk Perspective to the markets.

Mr. Brusuelas holds an M.A and a B.A. in Political Science from San Diego State and is a PhD candidate at the University of Southern California, Los Angeles.

Before joining Merk, Mr. Brusuelas was the chief US Economist at IDEAglobal in New York. Before that he spent 8 years in academia as a researcher and lecturer covering themes spanning macro- and microeconomics, money, banking and financial markets. In addition, he has worked at Citibank/Salomon Smith Barney, First Fidelity Bank and Great Western Investment Management.

Mr. Brusuelas lives in Connecticut with his wife and St. Bernard.

Merk Investments LLC is the manager of Merk Mutual Funds, including the Merk Asian Currency Fund and the Merk Hard Currency Fund. The Merk Asian Currency Fund invests in a basket of Asian currencies. Asian currencies the Fund may invest in include, but are not limited to, the currencies of China, Hong Kong, Japan, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

The Merk Hard Currency Fund invests in a basket of hard currencies. Hard currencies are currencies backed by sound monetary policy; sound monetary policy focuses on price stability.

The Funds may be appropriate for you if you are pursuing a long-term goal with a hard or Asian currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Funds and to download a prospectus, please visit www.merkfund.com.

Investors should consider the investment objectives, risks and charges and expenses of the Merk Funds carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Funds' website at www.merkfund.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest.

The Funds primarily invest in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Funds own and the price of the Funds' shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk which is the risk that debt securities in the Funds' portfolio will decline in value because of increases in market interest rates. The Funds may also invest in derivative securities which can be volatile and involve various types and degrees of risk. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. For a more complete discussion of these and other Fund risks please refer to the Funds' prospectuses.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advise nor a solicitation or an offer to buy or sell any products or services. Foreside Fund Services, LLC, distributor.

Copyright © 2008 Merk Investments LLC

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