For
the week of August 2, 2010 – Vol. 8, Issue 31 |
>> Market
Update
INFO THAT HITS US WHERE WE
LIVE Last week began nicely with June
New Home Sales UP 23.6% to an annual rate
of 330,000, well ahead of expectations. This was a sharp rebound from May
when New Home Sales sank to record lows not seen since 1963. This volatility of
course is all about the homebuyer tax credit (requiring a contract by April 30
and a closing by June 30, now extended to September 30). Consequently, new homes
sold at a 422,000 pace in April, fell to a 267,000 pace in May, then went to
330,000 in June.
Demographic trends say
sales should continue to rebound, as we eventually need to sell new homes at a
950,000 annual rate to meet population growth and replace teardowns. The supply of unsold new homes is now down to 7.6
months, just above the ideal 6-month level. Actual inventories are down
to 210,000, their lowest level since 1968, when there were 35% fewer people
around.
We also saw that home
prices rose 4.6% in May, year-over-year, as tracked by the Standard &
Poor's/Case-Shiller National Home Price Indices. The 20-city index was UP 1.3% over the prior month, with 19 of the 20 metros
showing gains during that period.
>> Review of Last
Week
A HOT
MONTH, JULY... The trading
month on Wall Street ended Friday with the markets really heated up for July.
The Dow Jones Industrial Average was UP 7.1% for
the month, while the broadly based S&P 500 finished UP 6.9%. This was
the first positive month for U.S. stocks since April. May and June had investors
worrying over China's attempts to slow its growth and a European debt crisis
which still hasn't had much impact in the U.S.
The week had a few negatives to please the bears. For
example, the Conference Board's Consumer Confidence Index went to 50.4 in July,
its second monthly decline. Yes,
consumers are concerned about jobs and the pace of recovery, but the fact is, the economy is growing and businesses are
making profits, which they will ultimately invest in more
jobs. Gloomy types also jumped on the 1.0% drop in
Durable Goods for June, yet
"core" capital goods (take out defense and
volatile aircraft shipments) were UP 0.2% -- their ninth gain in the past ten
months! But the biggest encouragement came from
strong second-quarter corporate earnings. With about two-thirds of the
S&P500 companies reporting, Thomson Reuters
says Q2 operating earnings are on their way to a 36% gain, with revenues UP 9%
compared to a year ago. Friday, advanced Q2 GDP came in with real GDP expanding 2.4% annually, UP 3.2% in the last
year. So much for the "double-dip" recession. The week ended with the
Chicago PMI registering another monthly increase
for Midwest manufacturing and University
of Michigan Consumer Sentiment also UP from the month before.
For the
week, the Dow ended UP 0.4%, to
10465.94; the S&P 500 was down 0.1%,
to 1101.60; and the Nasdaq was off 0.7%,
to 2254.70.
Even though July was a good month for stocks, the
final week was fairly flat. This sent investors to bonds, bolstering prices. The
FNMA 30-year 4.0% bond we follow gained 66 basis points for the week, ending at
$102.41. Not
surprisingly, Freddie Mac's weekly survey
of conforming loans showed national average rates for
conforming mortgages down for the sixth
week in a row, some hitting record lows.
>> This Week’s
Forecast
THE FED'S FAVORITES...The
two things the Fed watches most are inflation and jobs. As long as jobs lag in
the recovery, the Fed wants to keep rates down to encourage the economy.
But with all the cheap money around, if inflation picks up, the Fed will start
hiking rates. Tuesday's PCE
readings are expected to show inflation is still not a problem. Friday,
we get July's Employment
Report, with payrolls forecast to
be down, but by a smaller number than in June, and the Unemployment Rate remaining
around 9.5%.
Tuesday's June Pending
Home Sales are expected to be off slightly from their May drop following
the expiration of the homebuyer tax credit. Q2
corporate earnings reports continue, including Dow components Procter &
Gamble, Pfizer, and Kraft.
>> The Week’s Economic Indicator
Calendar
Weaker than expected economic data tends to send bond prices up
and interest rates down, while positive data points to lower bond prices and
rising loan rates.
Economic Calendar for
the Week of August 2 – August
6
Date |
Time
(ET) |
Release |
For |
Consensus |
Prior |
Impact |
MAug
2 |
10:00 |
ISM Index |
Jul |
54.2 |
56.2 |
HIGH |
TuAug
3 |
08:30 |
Personal Income |
Jun |
0.1% |
0.4% |
Moderate |
TuAug
3 |
08:30 |
Personal Consumption Expenditures (PCE) |
Jun |
0.0% |
0.2% |
HIGH |
TuAug
3 |
08:30 |
Core PCE Prices |
Jun |
0.1% |
0.2% |
HIGH |
TuAug
3 |
10:00 |
Pending Home Sales |
Jun |
–5.0% |
–30.0% |
Moderate |
WAug
4 |
10:00 |
ISM Services Index |
Jul |
53.0 |
53.8 |
Moderate |
WAug
4 |
10:30 |
Crude Inventories |
7/31 |
NA |
7.31M |
Moderate |
ThAug
5 |
08:30 |
Initial Unemployment Claims |
7/31 |
455K |
457K |
Moderate |
ThAug 5 |
08:30 |
Continuing Unemployment Claims |
7/24 |
4.530M |
4.565M |
Moderate |
FAug
6 |
08:30 |
Average Workweek |
Jul |
34.1 |
34.1 |
HIGH |
FAug
6 |
08:30 |
Hourly Earnings |
Jul |
0.1% |
–0.1% |
HIGH |
FAug
6 |
08:30 |
Nonfarm Payrolls |
Jul |
–87K |
–125K |
HIGH |
FAug
6 |
08:30 |
Unemployment Rate |
Jul |
9.6% |
9.5% |
HIGH |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes
in coming months The big surprise for economists would be if the Fed
touched rates at all from now to November. The central bank first wants to see
the economy growing at a far faster rate, with payrolls back on the rise. Note: In the lower chart, a 1% probability of change
is a 99% certainty the rate will stay the same.
Current Fed Funds Rate:
0%–0.25%
After
FOMC meeting on: |
Consensus
|
Aug 10 |
0%–0.25% |
Sep 21 |
0%–0.25% |
Nov 3 |
0%–0.25% |
Probability of
change from current policy:
After
FOMC meeting on: |
Consensus
|
Aug
10 |
<1% |
Sep
21 |
<1% |
Nov 3 |
<1% |
|
|
|