Equity markets across the globe are in sell-mode this morning, leading the US futures market to point to a lower opening while the US dollar is showing strength. Stocks in Europe are more than half a percentage point lower, while shares in Hong Kong and Japan closed down 0.70% each. The exception in Asia is China’s Shanghai Index, which posted a modest 0.15% rise as the nation’s Central Committee reiterated that a proactive fiscal policy and moderately loose monetary policy would be maintained.
The main event this week will be the Federal Reserve’s two-day monetary policy meeting beginning Tuesday. In terms of policy not much is expected, but investors want to read the central bank’s description of the economy.
Data this week should confirm that people are purchasing new and existing homes as prices stabilize. Durable goods should also point to normalization, and consumer sentiment should inch forward. Few are expecting jobless claims to moderate though, so for the average consumer the “end of the recession” could be meaningless for months to come.
Key Releases This Week:
Monday:
10:00 ― Monday’s only data release is the Leading Economic Indicators index for August, which should post its fifth consecutive monthly gain. Following a +0.6% print in July, forecasts assume the broad composite will rise 0.7% in August as stock prices continued to rise, durable goods orders advanced, supplier deliveries improved, and the housing market firmed.
Also in the report is the Coincident Index, which uses broad swathe of data to look at current economic activity. “Recent data suggest the July index could be revised to show the first gain since last October, but falling employment and a sharp rise in the CPI indicate renewed softness in August,” said analysts from Nomura Securities.
Treasury Auctions:
- 1:00 ― 3-Month Bills
- 1:00 ― 6-Month Bills
Tuesday:
**FOMC Meeting Begins**
10:00 ― The FHFA House Price Index, which uses single-family home data from Fannie Mae and Freddie Mac, indicated firmer home prices in May and June, which saw median prices advancing 0.6% and 0.5%, respectively. The report doesn’t get much market play, as investors prefer the Case-Shiller index of prices, but traders will be starved of data on Tuesday so it could have some impact.
Treasury Auctions:
- 11:30 ― 52-Week Bills
- 1:00 ― 4-Week Bills
- 1:00 ― 2-Year Notes
Wednesday:
2:15 ― Followed by a slow morning, the FOMC Meeting Announcement has the potential to shake up markets in the afternoon. It’s assumed the Fed Funds rate will remain under 0.25% and policy will remain status quo, but analysts want to read the Fed’s description of economic activity. Also of interest will be any talk of the central bank’s purchases of mortgage-backed securities.
“Discussion of economic conditions will mention recent improvements in activity, but, following the theme of Bernanke's recent speech, the recovery is expected to be relatively weak and substantial resource slack will persist for some time,” said Brian Bethune and Nigel Gault, economist at IHS Global Insight.
Treasury Auctions:
- 1:00 ― 5-Year Notes
Thursday:
8:30 ― Weekly Jobless Claims have moderated for the past two weeks, and the 545,000 new filings reported last week was the smallest number since early July. Some analysts look for a third week of improvement, but the median estimate is 550k.
“With markets anxiously awaiting signs of stabilization in the labor market, the weekly claims reports take on added importance,” said analysts from Nomura. “So far, the data only show evidence of very gradual improvement and an unexpected jump in continuing claims last week suggests businesses remain reluctant to re-hire laid-off workers.”
10:00 ― Existing Home Sales should post their fifth monthly gain in August, pushing the cumulative gain to around 19%. The Pending Home Sales Index, which predicts existing home sales, bumped up 3.2% in July, indicating the annualized pace of sales should be around 5.41 million units in August.
Analysts at Nomura, however, believe the sales rate will fall 0.8% to 5.20 million. “Although we believe home sales remain on a rising trend, the very sharp increase in July suggests some payback this month,” they said in a weekly note. “That said, there may be upside risks due to the first-time homebuyer tax credit. The popular program expires at the end of November and prospective buyers may attempt to close sales earlier to ensure they qualify for the rebate.”
1:00 ― Christina Romer, head of the White House’s Council of Economic Advisers, delivers the keynote address to the Chicago Federal Reserve Bank's International Banking Conference in Chicago.
Treasury Auctions:
- 1:00 ― 7-Year Auction
Friday:
8:30 ― Orders for Durable Goods jumped 5.1% in July but the gain was mostly accounted for by an 18.5% surge in the transportation component. Without that boost for August, the headline is expected to see a more modest 1.0% gain. Part of the gains this month could be price-driven as rising steel costs push up costs.
“The rebound in machinery should make it another excellent month for core capital goods orders, but lower aircraft orders will temper that strength in the aggregate,” predict analysts from IHS Global Insight.
Economics at BBVA are less optimistic. “New orders of durable goods are forecasted to drop 0.7% as they adjust from last month’s boom in orders of transportation equipment. Nevertheless, the year-over-year rate of decline will show further stabilization, indicating that demand is picking up, although it remains weak.”
10:00 ― The Consumer Sentiment report from Reuters & the University of Michigan jumped more than anticipated with a 4.5-point gain to 70.2 in September. Final revisions should only be better, with stocks continuing to post gains in the past two weeks. However, few economists are expecting that sentiment to translate into consumer spending in the fourth quarter.
10:00 ― Forecasts for New Home Sales are mixed. Housing permits for single-family homes were flat in August, indicating no upwards shifts should take place in the month. But the soon-expiring tax credit for first-time home-buyers should give some incentive for sales. The median estimate is for a 2.8% increase to a sales pace of 445k units, which would put the five-month gain to 34%.
“The wide range of forecasts, typical at this stage of the business cycle, reflects differing views about the speed of housing recovery,” noted analysts from Nomura.
1:15 ― Kevin Warsh, a governor at the Federal Reserve, delivers keynote address to the Chicago Federal Reserve Bank's International Banking Conference in Chicago.
