Retail sales, PPI and CPI may trip stocks

NEW YORK (Reuters) - Any new signs that the economy continues to decelerate could make it hard for stocks to regain their footing after a bruising week that saw market indexes down sharply, and left consumer confidence at a two-year low.

Monthly data from the Commerce Department, due on Wednesday, is expected to show retail sales rose 0.2 percent in October, according to the consensus forecast of economists polled by Reuters.

That would represent a slower pace from the 0.6 percent increase in September, which was bolstered by gasoline sales.

"We've had a series of weak numbers, so the retail sales could impact the markets quite a bit," said Brian Stine, senior portfolio manager with Allegiant Asset Management in Cleveland.

Wednesday also brings the U.S. Producer Price Index for October from the Labor Department. The consensus forecast is for an increase of 0.3 percent in overall PPI and a 0.2 percent gain in core PPI, which factors out volatile food and energy prices.

A month earlier, overall PPI rose 1.1 percent, while core PPI added just 0.1 percent.

On Thursday, the Labor Department releases October data on consumer prices. The overall Consumer Price Index is expected to rise 0.3 percent, while core CPI is forecast to gain 0.2 percent.

Both the producer and consumer price indexes will be studied for clues as to whether core inflation is tame enough to let the Federal Reserve cut interest rates once more at its December meeting.

The U.S. consumer is evidently showing the strain of falling home prices and rising energy costs. On Friday, The Reuters/University of Michigan Surveys of Consumers reported that its index of consumer sentiment slid in early November to 75.0, its lowest level in two years.

For the week, the Dow Jones industrial average .DJI lost about 4.1 percent and the Standard & Poor's 500 Index .SPX fell 3.7 percent. The Nasdaq Composite Index .IXIC dropped 6.5 percent.

For the year so far, though, all three major U.S. stock indexes are still in positive territory. The blue-chip Dow average is up 4.7 percent in 2007, while the S&P 500 is up 2.5 percent and the Nasdaq, despite its sharp decline for the week, is still up 8.8 percent for the year.

CREDIT CONTAGION

With companies like tech bellwether Cisco Systems Inc (CSCO.O) saying that its business has seen a significant decrease in orders from banks, concern about credit problems spreading throughout the economy has grown.

"The impact of the credit crunch is just starting to be felt," said Marc Heilweil, president of Spectrum Advisory Services Inc in Atlanta. "As (Fed chairman Ben) Bernanke said, there is going to be very little growth in the fourth quarter."

Earnings on tap in the new week includes retailer Wal-Mart Stores Inc (WMT.N), due on Tuesday. That same day, home improvement retailer Home Depot Inc (HD.N) reports results. Both are Dow components.

Quarterly results for the week also are expected from retailers Macy's Inc (M.N), JC Penney Co Inc (JCP.N) and Kohl's Corp (KSS.N).

The week starts off with the bond market closed on Monday for the Veterans Day observance, but stocks will trade as usual. There is no government data scheduled for Monday.

Tuesday's data includes pending sales of previously owned homes for September. The consensus forecast is for a decline of 2.8 percent, after a big drop of 6.5 percent in August.

On Friday, the Federal Reserve reports on industrial production for October. An increase of 0.1 percent is forecast, identical to the rise in September. Capacity utilization is expected to dip to 82.0 percent from 82.1 percent.

FASTEN YOUR SEAT BELTS

Stine of Allegiant Asset Management expects increased stock market volatility in the remaining weeks of 2007, as some players wind up their activity for the year and liquidity is reduced.

At Friday's close, the CBOE Volatility Index .VIX was up 8.9 percent at 28.50. The VIX, also known as Wall Street's fear gauge, generally rises when the broad S&P 500 falls. The VIX measures near-term anticipated stock market volatility as conveyed by S&P 500 options prices.

Heilweil of Spectrum Advisory Services believes that Wall Street hasn't seen the last of bad news.

"I doubt the market has quite hit its bottom," Heilweil said.

But he also says there is cash on the sidelines and values are starting to appear in certain sectors.

Other data scheduled in the coming week includes regional manufacturing data from Federal Reserve Banks in New York and Philadelphia, and the semiconductor industry's book-to-bill ratio, a measure of orders compared to products shipped.

(Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: cal.mankowski(at)reuters.com)

(Polling by Bangalore unit)

(Editing by Jan Paschal)