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Stocks moved lower last week, the S&P 500 fell 4.65%, or 52.5 points. Over the last three months the benchmark index is down 7.7%.

Ninety minutes before the opening bell, Dow futures are up 11 points to 10,115 and S&P 500 Futures are up 1.00 point to 1,075.75.

The 2-year Treasury note is unchanged yielding 0.653% while the benchmark 10-year note yield is 1.8 basis points lower at 3.091%. The August FN 4.5 MBS coupon is +0-02 at 100-25 and the August FN 4.5 is +0-02 at 103-11.

Key Events This Week:


8:30 ― The Personal Income & Outlays report is expected to show that income and consumer spending continues to recover, while inflation remains benign. In March and April, incomes rose a healthy 0.4%, and in May the expectation is +0.5%. Consumer spending has been less consistent, posting a flat reading in April after a 0.6% gain in March; in May economists looks for a moderate 0.2% advance. Lastly, core inflation is anticipated to rise 0.1% for the third consecutive month. As the Federal Reserve’s preferred measure of inflation, those feeble gains are encouraging to a policy of quantitative easing and loose monetary policy.

“We are expecting May personal income to post its strongest increase (0.6%) in a year on solid increases in compensation and dividend income,” said economists at IHS Global Insight. “Although private employment was little changed in May, hours worked and hourly earnings both improved. And government payrolls were temporarily boosted by census workers.”

The same forecasting team is less enthused about consumer spending though, which they expect to rise just 0.1%.  

“Increased spending on autos and services will be offset by lower spending on other goods signaled by May's poor retail sales report,” they predicted. “Real spending should do better than nominal spending since top level prices fell, led by gasoline. Based on May's core CPI reading (up 0.1%), we are expecting the same 0.1% increase in the core PCE price index. Its year-on-year increase should remain 1.2%.”

Treasury Auctions:

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


9:00 ― The S&P Case-Shiller Home Price Index will be closely watched this month. The index has seen prices slip for the past two months despite the government tax credit for new homebuyers. Prices remain 30.6% off from the peak of the housing bubble, but compared to one year ago, prices were up 2.3% (for the 20 major metropolitan areas).

A consensus of predicts was not available, but economists at Nomura said to look for prices to firm by 3.0% compared to one year ago.

The April report “will offer a decidedly more upbeat tone about the state of the housing market than recent activity reports,” they wrote. “Available measures of house prices for April, such as the daily RPX index, suggest that prices have continued to firm.”

10:00 ― Somehow, Consumer Confidence has been rising recently despite the onslaught of the Euro crisis, increased volatility in the stock markets, and a lack of significant job creation. In May the Conference Board’s report jumped to 63.3 from 57.7, marking a 25-month high as the jobs component hit a peak not seen since since December 2003. Economists are split 0n the direction of the index this month ― the consensus remains 63.3, with the range of predictions between 61 and 65.

“Consumer confidence is expected to decline slightly in June, but it will remain well above the twelve-month average,” predicted economists at BBVA. “Even though the labor market is recovering slowly, those with jobs are feeling more secure and more opportunities are opening up for the unemployed. Nevertheless, confidence remains well below the historical average of 95, which indicates that consumer spending will open up gradually.”

Treasury Auctions:

  • 11:30 ― 4-Week Bills
  • 11:30 ― 52-Week Bills


8:15 ― The ADP Private Employment Survey underwhelmed the market in May when it said just 55k private jobs were created in May. A few days later, it turned out that gain was too optimistic ― the official government report suggested only 41k jobs were created, in contrast to 158k in March and 218k in April. No consensus is yet available for the June report, but anecdotally it appears there’s little reason to see much improvement. 

9:45 ― The Chicago Business Barometer, which tracks the services and manufacturing sectors, was trimmed down to 59.7 from 63.8 in May, but as any reading above 50 reflects growth, the index was encouraging of broad growth. New orders and production were each strong at 62.7 and 61.0, respectively, but the employment index dropped to contractionary levels at 49.2 (sinking from 57.2). In June the index is expected to repeat its near-60 performance.

12:30 ― Dennis Lockhart, president of the Atlanta Federal Reserve, speaks on the economic outlook to the Rotary Club of Baton Rouge in Louisiana.


8:30 ― Initial Jobless Claims continue to levitate above levels consistent with labor growth. In the first three weeks of June, new claims have averaged 464k per week, which is the highest level since February (weekly claims were 458k in May, 463k in April, 448k in March, and 468k in February.) Week after week, economists predict a 450k level ― the threshold suggesting overall growth ― but not since the week ending May 8 have they been accurate.

Economists at BTMU say the data are accurate and imply that other economists are out of touch in such forecasts.

“Recent indicators showing that the downward trend in jobless claims has stalled and business confidence is faltering suggest that April’s strong growth in private payrolls was the anomaly, as opposed to May’s weak growth,” they wrote, predicting 460k fresh claims.

10:00 ― ISM Manufacturing Index has been extremely robust in recent months. The most closely watched and influential measure of the sector hit a six-year high of 60.4 in April and only strayed downward by 0.7 points in May. Importantly, May’s employment component jumped 1.3 points to 59.8, the second highest reading since December 1983. In June the index is anticipated at 59.0, representing gradual slowdown but overall far above the 50 level indicating sector growth.

“We expect another solid performance in the manufacturing sector, albeit less ebullient than the prior few months,” said economists at IHS Global Insight. “Regional indicators suggest a modest slowing. June was a decent month, but just pales in comparison to the past few barnburners.”

Economists at BBVA said manufacturing should remain resilient. 

“May’s increase in orders for durable goods excluding transportation points to further growth, as does the new orders component of May’s ISM report,” they wrote. “As a result, the ISM is expected to remain at a high level, which would point to robust growth in the industry, greater industrial production, an improvement in the industry’s employment situation and greater business spending.”

10:00 ― After existing home sales unexpectedly dropped 2.2% last week, markets will be eyeing the Pending Home Sales Index to see if a rebound is in store. Unfortunately, one isn’t expected.

“Because the federal homebuyer tax credit required that sales contracts be signed by the end of April, the May pending home sales index should show a very sharp decline in activity,” said economists at Nomura.

The PHSI tracks sales contracts that have been signed but not yet finalized, thereby acting as a leading indicator for existing home sales.


8:30 ― The general media thought last month’s Nonfarm Payrolls / Employment Situation report was bad, but June’s report promises to be much worse. Thanks to the gradual disappearance of Census jobs, plus only moderate inclines in private employment, 100k jobs are expected to vanish in the month, sending the unemployment rate up one-tenth to 9.8%. However, the report should look more positive when Census jobs are discounted from the headline. Indeed, 140k private jobs may have been created in June, compared with just 41k in May.

“We expect payrolls to fall 140,000 in June, as around 240,000 temporary Census workers are expected to drop off the rolls. And we expect to lose about another 20,000 state and local government workers,” wrote economists at IHS Global Insight. “The key number will be private payrolls, though, and here we are looking for a 120,000 increase (in between the 218,000 jump in April and the meager 41,000 increase in May). April's jump overstated the strength of the labor market, but we think that May's weak increase understated it.”

Economists at Nomura point out that recent labor indicators have been mixed but that a number of sectors have been growing.

“In particular, retail, financial services, professional and technical services, leisure and hospitality, and education and health were all quite soft relative to recent trends,” they wrote. “If a few of these components return to their pre-May trend, employment growth should firm.”

Below is a full preview of the week ahead with Reuter's consensus estimates.