The week ahead brings new data on manufacturing, housing sentiment and construction, industrial production and producer costs. 

Last week, the Dow shed 350 points and 10-year Treasury yields dipped below 3.70% as a series of weak data points confirmed the economic recovery was slowing down. This week, new data “should allay fears from investors that the wheels are falling off the economic cart,” said economists at IHS Global Insight.

“Building permits are expected to firm a little, and industrial production is expected to jump ahead in July due to unusually high seasonal automotive production rates,” they added. 

One hours before the week’s opening bell, Dow futures are trading 12 points lower at 10,254 and S&P 500 futures are down 2.25 points to 1,074. Meanwhile the yield curve continues to flatten after the Federal Reserve announced a lite version of Quantitative Easing last week. The 2-year Treasury note is +0-01 at 100-07 yielding 0.516% and the benchmark 10-year Treasury note is +0-17 at 100-02 yielding 2.62% (-5.9bps).

The October delivery Fannie Mae 30 year 4.0 MBS coupon is +0-06 at 102-28 and the October delivery Fannie Mae 30 year 4.5 MBS coupon is +0-03 at 104-19. Yield spreads are wider as benchmark yields rally.

The Week Ahead:


8:30 ― The Empire State Manufacturing Index, the first regional index to be released for August, is expected to improve somewhat after a sharp slowdown in July. Economists polled by Reuters look for a 3-point improvement to 8.0, following the near-15 point fall to 5.1 in July. Any score above zero indicates growth in the region.

“In our view, the steep decline in the Empire State manufacturing index in July likely exaggerated the cooling in growth in the sector,” said economists at Nomura. “We therefore expect a modest recovery in the August report. Specifically, we forecast an increase in the general business activity index to 10.0 from 5.1 previously.”

9:00 ― TIC Flows, a measure of what financial instruments foreigners are investing in,   reported that foreign demand for US Treasuries sank in May. That trend should reverse in June as yields on Treasuries benefited from a global flight to quality.

“Given the strong performance of the Treasury market during this period, as well as ongoing tensions in the euro zone, we suspect that foreign purchases of Treasuries were quite robust,” said economists at Nomura. 

10:00 ― The Housing Market Index, a measure of homebuilder sentiment, fell two points to 14 in July, or 36 points below the level indicating optimism among builders. The index is expected to inch up one point in August ― hardly a significant gain given the degree of pessimism.

“Housing market sentiment continues to be incredibly downbeat,” said economists at Deutsche Bank, expecting it to rise one point in August. “One ray of light in the housing sector is the fact that housing affordability is quite high. As long as the labor market continues to expand, we doubt the housing sector will reenter recession.”

Treasury Auctions:

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


8:30 ― Housing Starts, or plans to construct new homes, are expected to come in at an annualized rate of 560,000 in July, up from 549,000 in June. The anticipated rise will break a three-month downward trend initiated when the tax-credit incentive expired. Building permits, which anticipate starts by a month or two, are expected to fall 3k to an annualized pace of 580,000.

“The payback period is probably behind us, but demand for housing remains very weak,” said economists at IHS Global Insight. “The housing starts outlook hinges on the labor market. We are expecting subpar growth in jobs the rest of the year. Housing starts, as a result, will remain depressed.

Noting that inventories of new homes are at low levels, economists at BBVA believe builders remain pessimistic “because the excess supply of existing homes is eroding what little housing demand there is.”

8:30 ― After falling 0.5% in June, costs in the Producer Price Index are anticipated to rise 0.2% in July. If correct, the annualized rate of change would be +4.2%. The more closely watched core index, which strips out food and energy costs, is anticipated to rise just 0.1% for the second month. The core annual rate would be +1.3%, well below the central bank’s preferred 2.0% pace, which gives a green light for continued easing of monetary policy.

“We expect no change in headline prices, with little movement either for energy or food,” said economists at IHS Global Insight. “Core inflation is expected to show a modest positive of 0.1% as demand is not robust enough to create a seller's market, but not weak enough to produce a buyer's market.”

9:15 ― Industrial Production is set to jump 0.5% in July after a small 0.1% gain in June. Neither this month nor last is reflective of underlying strength: the June numbers were boosted by utility output, while July figures are anticipated to rise from a jump in auto demand.

“Production will get a major shot in the arm from the vehicles sector, as several producers eliminated or curtailed normal downtime around Independence Day,” said economists at IHS Global Insight. “Modest numerical output changes are magnified when normal patterns are violated, and July unit-vehicle production should climb by double-digit percentages.  Although July's gain is exaggerated, the third quarter can safely average higher vehicle production than in the second, as the Big 3 producers have less than 60 days' worth of sales on dealers' lots.”

9:00 ― Treasury Secretary Tim Geithner provides opening remarks on the Future of Housing Finance conference.

9:15 ― HUD Secretary Shaun Donovan delivers remarks at the conference.

9:30 ― First panel: Housing Finance Reform and Broader Financial Markets. The panel is moderated by Tim Geithner.

10:30 ― Second panel: Housing Finance Reform and Broader Housing Policy Goals. The panel is moderated by HUD Secretary Shaun Donovan.

11:45 ― Working lunches hosted by senior White House, HUD, and Treasury Officials. 


  1. Key Players in a Reformed System: Role of the Private Sector and of Government
  2. Delivering Access and Affordability
  3. Funding Housing and the Role of Securitization
  4. Aligning Private Market Incentives in the Housing Finance Chain
  5. Supporting Capital for Multifamily Finance
  6. Managing the Process of Transition

1:15 ― Closing remarks to the Future of Housing Finance conference.

12:30 ― Narayana Kocherlakota, president of the Minneapolis Fed, speaks at Northern Michigan University in Marquette, Michigan.

Treasury Auctions:

  • 11:30 ― 4-Week Bills


7:00 ― MBA Mortgage Applications increased 0.6% in the first week of August, while the four-week average is +1.2%. The average 30-year mortgage rate remains extremely low at 4.57%.

“Mortgage purchase applications have stabilized in recent weeks, but at depressingly low levels,” economists from Nomura commented. “Although applications have proven to be a relatively poor predictor of home sales in recent years, we believe they do contain some information about housing activity. Their failure to rebound more strongly during the summer could therefore point to weak home sales over the next few months.”


8:30 ― Initial Jobless Claims have been higher than 460k for the past four weeks, including 484k in the first week of August ― the highest level since February. For the second week of August, economists polled by Reuters anticipate 476k new claims. The worse news is that economists don’t believe the data reflect seasonal distortions.

“This week’s initial jobless claims data is expected to remain high and highlight the ongoing weakness in the labor market,” said economists at BBVA. “The trend in claims leveled out after falling steadily from March 2009 through March 2010. However, data in recent weeks is at one of the highest levels since the beginning of 2010. These trends support our expectation of a sluggish job market recovery in 2H10.”

10:00 ― Leading Economic Indicators, a composite measure of economic data, is expected to return to positive in July after turning up negative for two of the previous three months. Before those three months, the LEI saw 12 consecutive gains. Economists polled by Reuters anticipate a 0.2% gain for last month, led in part by labor data.

“Even though claims have risen in recent weeks, the figure fell slightly in July compared to June,” said economists at BBVA, predicting no change in the month. “However, other components such as consumer expectations, manufacturers’ new orders and building permits could drag down the index. This expected result would support our expectation of a slower pace of growth in 3Q10.”

10:00 ― Growth in the Philly Fed Index has been modest in recent months after rapid advances earlier in the year. The mean estimate is a 7.0 score in August, with some economists predicting a decline of 6 points and others looking for a gain as high as 10 points. The July score was just +5.1, way below the +21.4 recorded two months before.

“Although a broad set of indicators points to some slowing in economic activity, we do not believe it has been as steep as suggested by recent results for this index,” said economists at Nomura. “We therefore forecast that the Philly Fed index bounced back to 9.0 in August. We believe the prices paid index component of this report will continue to soften, reflecting primarily weaker metals prices.”

11:00 ― Treasury announces the terms of debt auctions scheduled to take place next week.  The Treasury will sell 2-year notes, 5-year notes, 7-year notes, and a 30-year TIPS bond.

11:30 ― James Bullard, president of the St. Louis Fed, speaks on monetary policy and the economic outlook in Rogers, Arkansas.

1:00 ― Charles Evans, president of the Chicago Fed, holds a press lunch.


No significant data.