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Market Insider: Wall Street's Bull Is Tired but Not Out

Published: Sunday, 10 May 2009 | 7:31 AM ET

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By: Patti Domm
CNBC Executive News Editor

Econorama

In the coming week, retail sales are perhaps the most anticipated among the economic reports, but there are plenty of other data points to consider.

"We're going to be focusing on the retail sales data. It will certainly be that April on-the-ground data, away from autos, has improved. April's been a great month, and we're going to continue to see upward surprises in a number of April data points," said Steven Wieting, U.S. economist for Citigroup.

Wieting said he expects negative 1 percent GDP for the second quarter. He said one factor hurting the second quarter is the shutdown of auto production by Chrysler and General Motors [GM Loading... () ], which would have contributed positive 2 percent to GDP but now contributes zero. GM is shutting production for nine weeks and Chrysler is shutting down during its bankruptcy.

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"May and June data points are going to be weaker than March and April. You're going to see (unemployment) claims filings (starting this week) in connection with those auto shutdowns. I don't think we're going to relapse and have an outright deceleration again, but it's going to hold back the pace of improvement," he said.

The April jobs report Friday showed non farm employment fell 539,000, less than the expected 600,000. The unemployment rate rose to 8.9 percent. Wieting said the next two months could see job losses near 500,000. "We're going to be headed for something in the neighborhood of a 300,000 decline ideally before too long," he said.

Wieting said he expects GDP to be slightly positive by fourth quarter. "We've moved away from the financial precursors or preconditions of a depression and we've moved the economy and the financial markets back on the path of a more cyclical event, and some of the data is more consistent with normal recession data," he said.

Other data in the coming week includes the NFIB small business survey and international trade for March, both released Tuesday. Wednesday's reports include retail sales, business inventories and import prices. Weekly jobless claims are reported Thursday. Inflation data comes in the form of producer prices Thursday and consumer prices Friday. Also on Friday, the Empire State survey, industrial production and consumer sentiment are reported. The closely watched Treasury international capital flows are also reported Friday.

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The Atlanta Fed holds its annual financial markets conference in Jekyll Island, Ga. Fed Chairman Ben Bernanke is the speaker Monday evening and will take questions from the audience

Treasurys

In the Treasury market, the yield curve steepening ramped up sharply this past week. By late Friday, the 10-year was yielding 3.29 percent, and the 30-year was yielding 4.27 percent, both off their high yields. In the past week, more than $70 billion was auctioned by the Treasury including a 30-year issuance that was particularly sloppy.

"The supply picture improves next week. All of the auctions are out of the way and we have three buybacks," said Rick Klingman, managing director of Treasury trading at BNP Paribas. He said the Fed will be in the market Monday, Tuesday and Thursday. The first buyback is for bonds, dated 2026 to 2039.

Klingman said Treasurys recovered some ground Friday and he expects buying could continue into next week.

"If you start to see financial stocks run their course and go back down, our market will start to trade better," he said.

Earnings Central

Retail earnings include Macy's and Whole Foods Wednesday; Wal-Mart; Kohl's and Nordstrom's Thursday, and JCPenney and Abercrombie and Fitch Friday. Other earnings of note include Dish Network and Fluor on Monday; Applied Materials and Nissan on Tuesday; Dr. Pepper Snapple Wednesday, and Agilent Thursday.