The key sector this week is housing, as data on new construction and homebuilder confidence are each expected to suggest recent progress. Meanwhile, several reports on inflation are also on the schedule, though they are unlikely to have a dramatic effect on markets as investors are much more concerned with sustained growth than out of control prices. Also, when the FOMC minutes are released on Wednesday, investors will be interested to read into voter sentiment and topics of conversation had at the most recent  Fed meeting.

Here Are The Key Events Of The Week:


8:30 ― The Empire State Manufacturing Survey is expected post its tenth consecutive month of growth in May, though the score is expected to be slightly lower than in April. Economists anticipate a score of 30.0, down from 31.9. In April, the index climbed a robust 9 points, and sentiment was clearly higher as the six-month outlook index rose to 55.7 from 54.3.

“Virtually all incoming indicators suggest the manufacturing sector continues to recover, and we expect growth to continue,” said analysts at Nomura Global Economics. “However, the Empire State index reached 31.9 last month, quite a high level from a historical perspective and probably not sustainable. We look for a modest retreat to 27.0 this month.”

Analysts at BBVA were more optimistic. 

“The manufacturing industry in the New York region is expected to continue to expand at a healthy pace in line with that of previous expansionary periods in May,” they said. “New orders surged according to last month’s survey, external demand is picking up and businesses are adding to inventories, which are all factors that could stimulate further expansion in the manufacturing industry.”

9:00 ― TIC Flows, or the Treasury International Capital report, will give investors some idea of how solid foreign demand for US assets was in the earlier stages of Europe’s sovereign debt crisis. Consensus predictions suggest overseas buyers purchased $50 billion of US Treasuries in the month, compared with $48.1 billion the month before. 

Economists at Nomura note that while demand for Treasuries may have increased as investors seek the safest assets, “Appetite for agency debt and corporate bonds has been weak. As investors are becoming more risk averse, their asset allocation may shift further to federal government debt.”

1:00 ― The NAHB Housing Market Index, a measure of homebuilder sentiment for the construction of single-family homes, improved by four points in the previous month’s survey. At 19, the index is at the highest level since September 2009, but the range is from 0 to 100, suggesting that deep pessimism continues to reign. The index has been below the 50 threshold since May 2006.

“After languishing for months at extremely low levels, the NAHB index of homebuilder sentiment has begun to perk up,” noted analysts at Nomura. “Given its low starting point, sharp increases should not be ruled out.”

Treasury Auctions:

  • 11:30 ― 3-Month Bills
  • 11:30 ― 6-Month Bills


8:30 ― Housing Starts, a measure of new construction activity, should grow for the fourth consecutive month in April. The median estimate among forecasters is to see an annualized pace of 650k housing starts, up from 626k in April. Predictions range from 620k to 673k, as the expiration of the homebuyer’s tax credit on April 30 could have an uncertain impact on the report.

Economists at IHS Global Insight said the expiring tax credit should help, along with improving labor markets. “Going forward, job growth and low inventories of new homes should translate into rising starts/permits ―although housing starts will remain below normal levels for the next two years.”

Similarly, economists at BBVA expect residential construction to recover at a slow pace throughout the year. 

They added, “Since housing starts have a powerful ripple effect, a positive result for this indicator would filter through to durable goods consumption, industrial production and corporate profits.”

8:30 ― The Producer Price Index should provide further evidence that inflation is not a concern. In March, the headline surprised investors by climbing 0.7%, but in April the increase is expected to be just 0.1%. The core index, which excludes volatile energy and food prices, rose only 0.1% in March and is expected to repeat the gain in April.

“Energy prices including gasoline should retreat around 1.8%, while food prices should ease back 0.4% after March's 2.4% jump,” predicted economists from IHS Global Insight. “Excluding food and energy, core producer prices should inch up 0.1%. March's surging jewelry prices will not repeat, but neither will the drag from falling vehicles prices.”  

12:20 ― Sandra Pianalto, president of the Cleveland Federal Reserve, speaks on forecasting in uncertain times to the Economic Club of Pittsburgh.

Treasury Auctions:

  • 11:30 ― 4-Week Bills


8:30 ― The Consumer Price Index is expected to be flat in April, following a 0.1% advance in March. Conversely, core prices, which exclude volatile food and energy prices, are expected to rise 0.1% after being flat in March. On both fronts, in other words, the risks of inflation and deflation are firmly balanced, allowing the Federal Reserve to focus less on prices and more on growth and employment. 

“Core consumer price inflation should ease another notch to a 34-year low of 1.0% in April, further below the Fed’s long-run forecast of about 2%,” said economists at BMO Capital Markets. “High unemployment and falling unit labour costs flag further disinflation ahead, which should keep the Fed parked on the sidelines for the better part of the year.”

“Food prices should push higher, but lower gasoline and natural gas prices should hold down the CPI headline,” added economists at IHS Global Insight. “Pump prices rose in April, but less than normal for the time of year, which translates into a seasonally adjusted decline.”   

10:00  Q1 2010 MBA National Delinquency Survey. The report covers more than 40 million loans on one-to-four-unit residential properties, representing more than 80 percent of all first-lien residential mortgage loans outstanding in the United States.

2:00 ― The Minutes of the FOMC Meeting seem unlikely to reveal much, given that dovish policy was left unchanged ― the Federal Reserve opted to hold rates  “exceptionally low ... for an extended period” ― and the April meeting was held just prior to the most tumultuous period for Greece. 

“One area of interest in the minutes will be whether more members of the committee ― that is, other than [Kansas City] President [Thomas] Hoenig ― have begun clamoring for a change in the statement's language,” said economists at Nomura. “While we expect no change in the statement for a few more meetings, as growth improves, open discussion about an end to the ‘extended period’ phrase should become more prevalent.”

There could be some discussion of purchasing mortgage-backed securities, the economists said.

“While we expect that most members favor [MBS] sales at some point, debate is intensifying about whether sales should come before or after funds rate increases. . . The minutes would be a natural place to reveal a shift in the committee consensus, so we will be watching this space closely.”


8:30 ― Initial Jobless Claims should continue falling in the week ending May 15. The 4-week average is currently at 450,500, just above the 450k threshold that economists often point to as a signal of whether there is net growth in labor markets. Economists anticipate a 4k fall to 440k in weekly unemployment claims, with some expecting a figure as low at 435k. 

“Initial jobless claims have been slowly drifting lower, and we expect this trend to continue for the foreseeable future,” said economists at Nomura. “At this point in the business cycle though, claims are not particularly valuable for forecasting non-farm payroll growth, in our view. The current level of claims is consistent with employment growth, and whether or not firms begin to ramp up hiring will determine how strong that labor market recovery will be.”

10:00 ― Leading Economic Indicators, a composite gauge that measures turning points in the economy, should suggest overall growth for the 13th consecutive month in April. But with economists expecting a 0.1% advance, the gain is hardly robust, particularly as it follows a 1.4% gain in March and a 0.6% increase in February.

“While manufacturing activity, financial markets and consumer expectations could have positive contributions, April’s rise in initial jobless claims will subtract from it,” said economists at BBVA. “Persistent growth in this leading indicator indicates that the recovery is strengthening. Furthermore, an expansion in April would be in line with our expectations of GDP growth in 2Q10.”

10:00 ― The Philly Fed Index has been much less consistent or strong compared to its cousin Empire State index for New York. But in May the headline was 20.2, marking broad-based growth that shouldn’t let up up this month. Economists look for a moderate climb to 21.5, far above the zero threshold suggesting growth.

“The Philly Fed's index of manufacturing activity is expected to be almost unchanged at 20.0 in May from 20.2 previously,” said economists at Nomura, who called their forecast “an encouraging sign that manufacturers in this region are still in expansion mode.”

11:00 ― Treasury Department announces auction supply terms for 2s, 5s, and 7s. The most recent refunding auctions last week were well-attended by investors as have most others in recent months.


No significant data.