Yesterday’s global sell-off caused the S&P 500 to lose 2.43% in a single day, its worst performance in six weeks. Thankfully, US markets are looking up this morning, following broad-based market recovery across Asia and Europe. In the US, it helps that Q2 losses from Home Depot were also more moderate than expected, due to cost-cutting.

Markets have to digest two bits of data at 8:30 before we know if they’ll maintain that optimism and open higher. Producer Prices can be ignored unless there is a big surprise, as the more-important consumer price index was released last week. Attention will instead be on the Housing Starts & Building Permits report, which should advance for the third straight month. With a consumer-led recovery dependent on improvement in the housing market, a downside surprise could certainly dampen the optimism.

Sentiment in the housing market was boosted somewhat yesterday when the NAHB survey of homebuilder confidence edged up one point to its highest level since in 14 months.

In headlines this morning, former Federal Reserve chairman said he believes the economy should see a decent recovery in 2009 but that it wouldn’t be sustainable into next year.

"I think we're OK for the next six months," Greenspan said in an interview with Reuters. "We are getting a recovery in (housing) starts and motor vehicles, but the process doesn't have legs to it."


8:30 ― Housing Starts increased more than 20% between May and June, which would cause some to call for a moderation in July simply on technical reasons. But, in fact, the median forecast looks for another advance in July, which would be the third consecutive gain. The consensus looks for housing starts to advance 2.7% to an annual pace of 598k in July, while building permits are expected to gain 1.3% to 575k.

Details of the report have been more mixed than the headline would suggest, as single-family starts have been improving rapidly, while multiple-family unit starts have been erratic, dropping 26% last month after surging 66% in May. 

“Builders have pared back on inventory and are starting to build new homes,” said analysts from IHS Global Insight. “We are thus expecting another steady improvement in single-family starts and permits for July. The market for multiple-family homes is still slumping, however, and July's numbers will reflect this fact. This market will not improve until credit conditions in the market for commercial real estate loans improve.”

The economics team at BBVA points out that residential construction “remains at extremely low levels with housing starts more than 40% below those of last year,” adding that a quick recovery will be hindered by more foreclosures, which continue to put deflationary pressures on prices. “As a result, we might need to see price stabilization and inventory reduction in the market for existing homes in order for there to be a strong recovery in housing starts,” they wrote in a client note.

8:30 ― The Producer Price Index index is unlikely to gather many followers this week given that the more important consumer price index was released last week. But for all the wonks out there: total PPI is set to fall 0.3% in July after an energy-led 1.8% increase in June. Strip out energy and food prices, and core PPI should gain 0.1% after 0.5% gain in the prior month (driven by auto prices).

“Overall, core producer prices remain more than 3% above those of last year, which could help to offset the effect of declining wages, producers’ primary cost, on consumer prices,” said economists at BBVA in weekly forecasting note.

1pm ― Treasury holds an auction for 4-week bills.