Inflation data and potential earnings surprises will give the market spice in the holiday-shortened coming week. "Last week we saw earnings pre-announcements and a higher-than-expected producer price index move stocks," says Brian Williamson, equity trader at Boston Company Asset Management. "Next week, we expect more earnings surprises and the CPI to provide the volatility." Stock and bond markets will be closed Monday in observance of Martin Luther King Jr. Day. When traders return Tuesday, they will be treated to capacity utilization and industrial production figures for December. Economists surveyed by Thomson First Call expect utilization to increase to 80.5% from 80.2% the prior month. On the production end, they are looking for a slight decrease to 0.6% from 0.7% in November. The December consumer price index should dominate trading on Wednesday as creeping energy prices are once again sparking inflation fears. Economists expect the CPI to rise 0.2%, a big jump from November's decline of 0.6%. The core CPI, which excludes food and energy, is anticipated to remain flat from November at 0.2%. Higher energy prices kept wholesale inflation humming in December. The Labor Department said Friday that its producer price index rose 0.9% last month, more than twice the rate economists expected. The gauge, a key metric in the Federal Reserve's interest rate policy, rose by 0.7% in November. Excluding food and energy, December's so-called core PPI rose 0.1%, slightly below expectations. Contributing to the 0.9% gain in the headline number was a 12.3% rise in gasoline prices, which helped pace a 3.1% increase in overall energy costs. "After the PPI bounced last week due to higher energy costs, there is a big risk of the CPI following suit next week," says Jason Schenker, economist at Wachovia. "There is significant upside risk there."
Still, Schenker says the energy component is less of a factor in determining the CPI than the PPI because raw-material costs are more often absorbed by producers than passed on to consumers. Energy comprises 17% of the PPI, compared with 8% of the CPI. Schenker also advises keeping an eye on Thursday's Philadelphia Fed manufacturing index for January, which he calls "the first real economic sign of 2006." Economists expect the index to rise to 13.4 from 12.6 the prior month. Also scheduled for Thursday release are building permits and housing starts data for December. Both are expected to ease slightly from the previous month.
Wednesday's highlights include reports from CIT Group ( CIT), J.P. Morgan ( JPM), Southwest Airlines ( LUV) and Washington Mutual ( WM). Web auctioneer eBay ( EBAY) will be in the spotlight Wednesday. According to Thomson First Call, analysts are looking for the company to post earnings of 22 cents a share, up from 16 cents last year, on sales of $1.29 billion. Also on the docket is Apple ( AAPL). The iPod and Mac maker, which last week said it recorded $5.7 billion in sales in the holiday period, is expected by Wall Street to report earnings of 63 cents a share for its fiscal first quarter. Among the notable names on Thursday's earnings calendar are Merrill Lynch ( MER), Wachovia ( WB) and Motorola ( MOT). The action is a bit less hectic on Friday, but there should still be some stirrings following earnings announcements from the likes of mega-caps Citigroup ( C) and General Electric ( GE). Analysts' mean earnings estimate for Citigroup is $1 a share, down from the $1.02 reported a year earlier, on revenue of $21.06 billion. GE, meanwhile is expected to post earnings of 55 cents a share, up from 51 cents, on a whopping $42.06 billion in revenue.