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Investors are optimistic this morning ahead of the central bank’s afternoon policy announcement. Sentiment could easily change early into the session, however, as the new home sales index is anticipated to fall after the expiration of the homebuyer tax credit.. ...

“Although the federal homebuyer tax credit expired at the end of April, contracts do not need to be closed until the end of June,” noted economists at Nomura Global Economics. “The existing home sales report ― unlike the new home sales report or the pending home sales index ― tracks contract closing, and therefore could remain strong for a bit longer. We forecast that sales increased by about 6% month-over-month in May to an annualized rate of 6.1 million units. Sales are likely to drop off sharply once the closing deadline passes, however.”...

After a steady rally pushed the stock market up more than 2% yesterday, investors are nervous about extending those gains today. Concerns from Europe are back on the table as Spain may apparently need to tap into a credit facility to avoid turmoil. The Financial Times called the country “the next potential crisis in the eurozone bond markets. This week the Spanish government and BBVA, Spain’s second biggest bank, admitted what investors have known for weeks: the country’s banks are on the brink of a funding crisis because their access to international markets is virtually closed,” the UK newspaper reported. ...

Housing Starts ― or new construction of single-family homes ― are anticipated to fall in May after building permits contracted 11.5%. In April, the annual pace of starts increased almost 6% to 672k, while in May they are expected to come in at 650k. The expected decline follow two months of substantial month-t0-month growth, but aside from those months the level of starts had hardly budged since February 2009. “Inventories of new homes are at historically low levels and builders’ confidence has improved, but the excess supply of existing homes and less than robust demand will keep many builders’ tools in the tool shed,” said economists at BBVA. “The recent pick-up in housing starts in recent months points to recovery. Nevertheless, economic conditions indicate that the recovery will be slow.” ...

Stocks are likely to open sharply higher this morning as a strong global session, China excluded, leads the way into positive territory. Ninety minutes before the opening bell, S&P 500 futures are up 10 points to 1,065.50 and the Dow futures contract is +73 at 9976. The 2-year Treasury note yield is 2 basis points higher at 0.746% and the benchmark 10-year note yield is 3.3 basis points higher at 3.211%....

Markets are Friday sold off on a weak employment report. Prices worsened throughout the day on fears that Hungary ― which announced a larger-than-expected deficit ― is the next Greece. Looking to the week ahead, some economists are anticipating the sell-off to continue. “This week… look for more of the same, particularly as China is poised to release a truckload of economic indicators towards the end of the week for the month of May, which will roil markets far and wide if they indicate that activity, is slowing,” said economists at BMO Capital Markets. ...

Stock futures this morning look to continue the broad rally which pushed the Dow up by 225 points yesterday. More than two hours before the opening bell, Dow futures are up 40 points to 10,272 and S&P 500 futures are up 2.60 points to 1,099.30. WTI crude oil is also up 0.62% to $73.30 per barrel, but Spot Gold is off 0.36% to $1,216.20....

The Week Ahead: ISM Manufacturing Index, Construction Spending, Pending Home Sales Index, ADP Employment Report, Initial Jobless Claims, Productivity & Costs, ISM Non-Manufacturing Index, Nonfarm Payrolls Employment Situation...