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Posts Tagged ‘mortgage applications’

Purchase Aps Hit 13Y Low as Tax Credit Expires

May 26th, 2010 Michael McDonough Comments off

Not since June 2008 has the housing sector been completely devoid of some form of tax incentive to help bolster sales, until now that is and it shows.  MBA purchase applications have taken a precipitous drop over the past two weeks falling to levels not seen since the end of 1997.  The government’s approach of bolstering current sales by borrowing from the future sales appears to have worked, and now it’s time to pay the piper.  Headwinds for the sector remain strong generated by stiff credit conditions, high unemployment, increasing foreclosures, large inventories of vacant homes, and a lack of tax credits; while tailwinds are slowing to a breeze.  A robust recovery in housing during 2010 is extremely unlikely.

  MBA Purchase Applications

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Housing Recovery: To Remain a no Show in 2010

May 12th, 2010 Michael McDonough Comments off

Now that the extended first time home buyer credit is history, so is whatever impact it once had on home sales.  The good news is that data indicates the extended program had only a modest impact, especially compared to the original incentive; this however is also the bad news.  A recent, albeit modest, jump in home sales in the program’s 11th hour implies some interest in the program, but at levels only a fraction of the original credit’s impact leading up to its ‘would-be’ expiration in November.  As the chart below illustrates, existing home sales rose from a SAAR of 5.10mn units in August to 6.49mn by the would-be expiration in November, after which sales fell off a cliff.  While sales recovered modestly from February’s recent low of 5.01mn units, the lack of any significant impact is clear.  A spike in March’s pending home sales should help support home sales for at least another month, but beyond that sales will likely remain tepid, despite near record affordability.

Source: Bloomberg

Looking at a more ‘real-time’ housing indicator, MBA purchase applications (released this morning) rose marginally leading up to the expiration of the extended tax credit, but have since begun to recede.  Notice the flatness of purchase applications between November 2009 and March 2010, highlighting the general lack of interest in the new program.

Source: Bloomberg (rebased)

The combined effects of lukewarm demand, and a massive supply of vacant homes in the market will likely continue to be a drag—or at least not add any growth—to residential investment (a GDP component) for the remainder of the year.  This will hamper the strength of the current recovery, which will have to rely heavily on inventory rebuilding and business spending.  Upside risks to this forecast exists if stronger than expected consumption leads to more significant hiring.  However, over the quarters ahead fiscal stimulus will turn fiscal drag stirring up headwinds growth will be forced to overcome.

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US Economics Week Ahead: Housing Side Story & A Special Election

January 15th, 2010 Michael McDonough Comments off

This week will primarily focus on earnings, with housing data acting as an intriguing side story. Companies expected to report earnings this week include: AMR Inc. (AMR), Bank of America (BAC), Citigroup (C), CSX (CSX), EBay (EBAY), GE (GE), Goldman-Sachs (GS), Google (GOOG) IBM (IBM), Morgan Stanley (MS), and Wells Fargo (WFC).

The housing side story will start on Tuesday with the release of the NAHB’s housing market index, which should come in relatively unchanged from last month.  On Wednesday attention will shift to housing starts/permits and MBA mortgage applications.  But, be aware, December’s cold weather may lead to a disappointing housing starts release.  If this does occur, then I recommend taking a look at the activity in new permits, which tends to be a forward looking indicator for starts—new permits rose 6% in November.  Other indicators to watch this week are Tuesday’s TIC data; Wednesday’s PPI release; and Thursday’s jobless claims, leading indicators and Philly Fed Survey.  The index of leading indicators should post its ninth consecutive month in positive territory.

Fed speak is non-existent this week ahead of the January 26-27 FOMC meeting, however, we could hear see some important headlines around Chairman Bernanke’s confirmation hearing.  His current term as Chairman is set to expire January 31st.  I anticipate that Bernanke will be reconfirmed, but any indications to the contrary have the potential to send ripples through the market.

Another key event this week will be Tuesday’s special election in Massachusetts to fill the seat of the late U.S. Sen. Edward Kennedy.  If the Republican candidate, Scott Brown, takes the election from Martha Coakley, then democrats lose their filibuster-proof, 60-seat majority in the U.S. Senate, potentially complicating the passage of healthcare reform. Scott Brown has indicated he is not in favor of the current reform, while interim Senator Paul Kirk—currently sitting in Kennedy’s old seat—would vote in favor of it.

However, I am no political pundit, but a Republican victory could prompt Democrats to expedite a vote on healthcare reform to exploit a gap between the special election and what would be Mr. Brown’s swearing in. From my understanding, the election cannot be certified until all absentee and military ballots are tallied, which I am told could take up to 10 days after the actual election–other sources have indicated Brown’s swearing in could be pushed back to as late as February 20th. To the outrage of some voters, this could award Democrats the opportunity to pass the reform while maintaining their filibuster proof majority. The bottom line here is a Republican victory in Massachusetts will likely lead to a political pickle. This is just something to think about while watching Tuesday’s results.

Here is the rest of this week’s US calendar:

Monday, Jan. 18

Holiday: All Markets Closed

Tuesday, Jan. 19

9:00 a.m. EST: November’s Treasury International Capital (TIC) Data (Risk: Neutral, Market Reaction: Marginal): This report highlights the flow of financial instruments to and from the U.S. It indicates foreign demand for U.S. financial instruments and thus tends to have a stronger impact on the dollar and the bond markets than it does on equities.  But, given the recent record levels for treasury auctions, it will be interesting to monitor foreign demand for US debt.

10:00 a.m. EST: January’s State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report in December, “This month’s up-tick in global investor confidence stemmed largely from an improvement in the mood in Asia, where risk appetite rose to an eight-month high,” commented Froot. “Elsewhere portfolio reallocations were modest. With three of the four indices over the neutral level of 100, institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year. Investors will be watching for signs of renewed economic growth, and well-designed exit strategies from policy makers, before making more significant reallocations towards risk in 2010.”

1:00 p.m. EST: January’s Housing Market Index (Risk: Neutral, Market Reaction: Moderate): After receiving a boost from the original first time home buyer tax credit and the Fed’s MBS purchase program—to keep mortgage rates low—the HMI has been relatively flat , trending slightly down from September’s peak.  Concerns by builders regarding unemployment, consumer credit, and the eventual impact of the expiration of temporary government programs designed to bolster the sector will likely keep the HMI suppressed for the time being.  The current Bloomberg consensus forecast is for a reading of 17 in January compared to 16 in December; any reading below 50 indicates negative sentiment toward the sector.

Wednesday, Jan. 20

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 14.3% last week after rising a modest 0.5% a week prior.  Refinance applications jumped 21.8%, while purchase applications rose just 0.8%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Last week’s number fell -3.0% compared to an increment of +1.5% a week prior.

8:30 a.m. EST: Housing Starts (Risk: Negative, Market Reaction: Significant): Given extremely cold weather across the country in December, I would not be surprised to see housing starts disappoint what I believe is an overly optimistic consensus forecast.  However, November’s data indicated a 6.0% rise in permits, which tends to be a good forward looking indicator for starts.  With this in mind, if starts disappoint, then it will be important to monitor any changes to permits data for indications of future strength. The current Bloomberg consensus forecast is calling for housing starts to rise to a seasonally adjusted annual rate of 579,000, compared to 574,000 in November. 

8:30 a.m. EST: December’s Producer Price Index (Risk: Neutral, Market Reaction: Moderate): The PPI surprised to the upside in November rising 1.8%, largely due to an increment in energy prices.  But, December’s PPI should show a very marginal change, with a modest decline even within the realm of possibility, especially after November’s large gain.  The current Bloomberg consensus forecast is for now change in the PPI, while the Core-PPI is anticipated to rise by 0.1%.  This release loses some importance since the CPI was already released last week.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.4% last week on a yearly basis.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increase of 3.7 million barrels versus a rise of 1.3 million barrels a week prior.

Thursday, Jan. 21

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 11K last week to 444K, after rising 1K a week prior.  The four week moving average improved to 440,750 from 449,750.  An improving trend in initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, given the still elevated number of claims the job situation will get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 440K on Thursday.   Given the holidays—Martin Luther King Jr. Day this week—tricky seasonal adjustment factors can skew weekly claims data.

10:00 a.m. EST: December’s Leading Indicators (Risk: Neutral, Market Reaction: Moderate): December’s leading indicator index will likely show its 9th consecutive month of positive readings.  The current Bloomberg consensus forecast is expecting a +0.7% rise for the month, compared to a +0.9% increment in November.  The biggest positive contributions for the index will likely come from the yield curve, followed by initial jobless claims, and stock prices; while money supply is expected to be the largest negative factor.

10:00 a.m. EST: January’s Philly Fed Survey (Risk: Negative, Market Reaction: Significant): Recent weakness in the Philly Fed’s 6-month outlook index could translate into weakness for this month’s release.  The 6-month outlook index peaked in June at 60.1 and has since fallen to 24.4 in December.  Additionally, in December the survey’s new orders component fell to 6.5 from 14.8.  But, it should be noted that the New York Fed survey surprised to the upside last week, which could bode well for the Philly release.  The current Bloomberg consensus forecast is for a reading of 18.0, compared to 20.4 in December. 

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet rose to a record last week to US$2.274trn from US$2.216trn, on increased purchases of agency debt and mortgage backed securities.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 22

10:00 a.m. EST: State & Regional Unemployment Rates (Risk: Neutral, Market Reaction: Marginal): This data is unlikely to cause any market reaction, but will add details behind December’s employment report.

Enjoy the weekend!

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US Economics Week Ahead: Retail Sales & The Start of Earnings

January 8th, 2010 Michael McDonough Comments off

With employment out of the way—for now—onto earnings; Alcoa is scheduled to kick of the 4Q09 earnings season with its report on Monday.  Earnings might be stealing most of the show this week, but don’t count out economic data with the release of a critically important retail sales release on Thursday and a torrent of Fed speak prior to the blackout period for the Jan 26-27 FOMC meeting.  Speaking of the Fed the market will gain access to the Beige Book on Wednesday, which should continue to indicate marginal upticks in economic activity throughout the fed’s districts.  Other important releases include; Thursday’s jobless claims and business inventories; and Friday’s CPI, Empire State Manufacturing Survey, industrial production, and consumer sentiment releases.

Don’t ignore the fed speak.  It is my belief that as we move closer to a new fed tightening cycle the first indications of a shift in the Fed’s bias will come through subtle or maybe even not so subtle clues in fed officials numerous public speeches.  The next indicator will come in the form of the FOMC minutes, but that is another story for another day.  Given the weakness in last week’s employment report I still think we are a ways off from a new tightening cycle—November 2010—, but I am not the one making the decisions, so I recommend listening to Fed officials closely as we move closer to an inevitable move.

Other notable companies reporting earnings next week include Intel (INTC) and JP Morgan (JPM).  Next week will also see the opening of the Detroit Auto Show on Monday, where heavy focus is likely to be placed on small and hybrid vehicles.  Finally, I wanted to thank everyone who has recently emailed me regarding the usefulness of this piece.  Additionally, I invite anyone with any comments or recommendations on how to make the Economic First Look even more useful to please shoot me an email.

Here is the rest of this week’s US calendar:

Monday, Jan. 11

12:40 p.m. EST: Dennis Lockhart, the Atlanta Federal Reserve Bank President, will give a speech on the economy at the Rotary Club of Atlanta.

9:10 p.m. EST: James Bullard, the St Louis Federal Reserve Bank President, will speak in Shanghai.

Tuesday, Jan. 12

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Last week’s number rose +1.5% compared to an increment of +0.4% a week prior.  This week’s release will cover the first full in January.

8:30 a.m. EST: November’s International Trade (Risk: Neutral, Market Reaction: Moderate): I anticipate that November’s trade balance will widen slightly as likely imports rose at a faster pace than exports, due to higher energy import costs.  In October, export growth surprised to the upside leading to a marginal contraction in the trade balance. It is usually expected that both exports and imports rise during the start of an economic recovery, while the trade balance widens.  The current Bloomberg consensus forecast is for the trade balance to widen to -$35.0bn in November from -$32.9bn in October.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales rose 1.6% last week on a yearly basis.

7:00 p.m. EST: Charles Plosser, the Philadelphia Federal Reserve Bank President, will give a speech on the economic outlook at the Entrepreneurs Forum of Greater Philadelphia.

Wednesday, Jan. 13

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications rose 0.5% last week after plummeting -22.8% a week prior.  Refinance applications fell -1.6%, while purchase applications rose 3.6%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed an increase of 1.3 million barrels versus a drop of -1.5 million barrels a week prior.

12:30 p.m. EST: Charles Evans, the Chicago Federal Reserve Bank President, will speak at the Corridor Economic Forecast Luncheon.

2:00 p.m. EST: Beige Book (Risk: Neutral, Market Reaction: Significant): In the Fed’s previous Beige Book all of its districts reported at least modest upticks in growth, and I anticipate this trend will continue in the current release.  The report covers the last week in November though the first week of January.  The Beige Book is used as an input at the FOMC’s monetary policy meetings, meaning it shouldn’t be ignored by investors.

2:00 p.m. EST: December’s Treasury Budget (Risk: Neutral, Market Reaction: Moderate): December’s treasury budget will almost certainly show a record 15th consecutive month of deficits.  In November the monthly deficit totaled -$120.3 billion, bringing the government’s fiscal year to date total deficit up to -$296.7 billion.  December’s deficit may get some relief through TARP paybacks, but remain negative.  The current Bloomberg consensus forecast is for a deficit in December of -$92.0 billion.

Thursday, Jan. 14

8:30 a.m. EST: December’s Retail Sales (Risk: Neutral, Market Reaction: Significant): After rising 1.3% in November, retails sales should experience its third consecutive month of growth in December.  This growth will likely be led by strong vehicle sales during the month, which rose to a pace of 11.2mn vehicles during the month from a pace of 10.9mn units in November.  Excluding the auto component, retail sales should show some growth, but at a more moderate rate.  Of course any surprise to the upside in this data would be welcomed by the market.  The current Bloomberg consensus forecast is for retail sales to rise 0.4% in December, with retail sales ex-auto rising a more moderate 0.2%.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 1K last week to 434K, after falling 22K a week prior.  The four week moving average improved to 450,250 from 460,250.  This week’s strong seasonal adjustment factor—the strongest of the year in fact—could have some sway over the weekly report.  Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better.  The current Bloomberg consensus is for an initial jobless claims reading of 437K on Thursday.

8:30 a.m. EST: Import and Exports Prices (Risk: Neutral, Market Reaction: Marginal): A decline in energy prices during the month and a modest appreciation in the US dollar will likely helped to bring down import prices in December.

9:00 a.m. EST: RBC CASH Index (Risk: Neutral, Market Reaction: Marginal): The Royal Bank of Canada’s Consumer Attitudes and Spending by Household (CASH) Index is a monthly measure of consumer attitudes toward investing, the economic outlook, and personal finances.  This index does hold some importance in so much that it tends to demonstrate a pretty significant correlation with the consumer sentiment index being released on Friday.

10:00 a.m. EST: November’s Business Inventories (Risk: Positive, Market Reaction: Moderate): Marginal attention is typically placed on this release, but this month the business inventories report takes on added significance. Economists use this release to help gauge the impact of the inventory cycle on fourth quarter GDP growth.  What this means is economists will be using this data to confirm or alter their fourth quarter 2009 inventory projections, which could sway fourth quarter GDP projections.  Many economists—including myself—expect the inventory cycle will play a lead role in the current recovery.  It is important to note that the manufacturing and wholesale inventory components of the report have previously been released and rose +0.2% and +1.5%, respectively.  Therefore, the report’s retail inventory component—the only unknown figure— is the most important for investors to watch.  The current Bloomberg consensus forecast is for a rise in business inventories of 0.2%.

10:30 a.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

4:30 p.m. EST: Fed Balance Sheet & Money Supply—Current Week’s Release (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet shrank marginally last week to US$2.216trn from US$2.219trn.  The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 15

8:30 a.m. EST: December’s Consumer Price Index (Risk: Neutral, Market Reaction: Significant): Headline consumer prices likely rose in December, albeit at a slightly more moderate pace than the 0.4% rise in November.  A bit of warning, on a year over year basis headline CPI will likely rise at the fastest pace in over a year due to extraordinarily low energy prices realized in the fourth quarter of 2008, this pattern will likely continue over the next few months and then normalize as past energy prices play catch-up.  Core CPI should remain relatively subdued during the month.  The current Bloomberg consensus forecast is for a monthly rise in headline CPI of 0.1%, with Core CPI anticipated to rise at the same pace.

8:30 a.m. EST: January’s Empire State Manufacturing Survey (Risk: Negative, Market Reaction: Significant): This release will be investors first window into the fed’s regional factory sector reports for 2010.  Over the prior two months this survey has lost significant ground falling to 2.6 in December from 34.6 in October—a reading over 0 signifies expansion.  In December the Richmond fed’s release fell below 0 for the first time in 7 months; ironically, Richmond was the first of the fed’s districts to indicate a marginal recovery.  Nevertheless, I do not anticipate the NY fed’s survey will follow suit.  The current Bloomberg consensus forecast is for a survey result of 13.0, compared to 2.6 in December.  The new orders component remained positive in December, but barely, so I recommend keeping a close eye on December’s number.  Additionally, don’t forget to watch the prices paid and employment components of the release.

8:30 a.m. EST: December’s Industrial Production (Risk: Neutral, Market Reaction: Significant): Extremely cold weather across the country should help boost utility output during the month, which should help bolster December’s industrial output.  Growth in the manufacturing component should be relatively restrained during the month as aggregate hours worked in manufacturing fell -0.4% during December.  The current Bloomberg consensus forecast is for an increment in industrial production of 0.6%, compared to 0.8% a month prior.  The same forecast anticipates capacity utilization to rise to 71.9% from 71.3% in November.

9:55 a.m. EST: Preliminary January Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): I expect this index will be up marginally from its final reading of 72.5, on the back of early indications of improvements in the labor market, and incentives around the holiday season.  But, these positive factors will be playing a tug-of-war against negative factors including energy prices and what, despite improvements, is a weak labor market.  The current Bloomberg consensus forecast is for a reading of 74.0.

12:30 p.m. EST: Jeffrey Lacker, the Richmond Federal Reserve Bank President, will speak about the economic outlook to the Richmond Risk Management Association.

2:30 p.m. EST: Janet Yellen, the San Francisco Federal Reserve Bank President, will give a speech on “Economic Environment for Innovation” at the Innovation and Equity Conference in San Francisco, CA

Enjoy the weekend!

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US Economics Week Ahead: Is There Time for Turkey?

November 21st, 2009 Michael McDonough Comments off

The market will be providing a cornucopia of data this week centered on Tuesday and Wednesday, which you can mull over as you begin brining your turkeys—as an aside here’s the recipe I will be following this year.  Also, I wrote an interesting column on Friday for Real Money titled ‘Talking Turkey on Agricultural Trends’ that I recommend you read.

The market will digest 15 important data releases in just three days.  But here’s what you should be paying attention to; the week’s most critical data will likely come in the form of the FOMC minutes, home sales, personal income and outlays, and the first revision of third quarter GDP, which likely won’t look as rosy as the advanced estimate.  On the housing front we will get the FHFA and Case Shiller Home Price Indices.  The MBA mortgage application index has also been garnering more attention as purchase applications continue to plummet to 12 year lows.  Looking toward the consumer, both the Conference Board’s and University of Michigan’s consumer sentiment indices are schedule for release.  Finally, I should mention that on Wednesday we will be getting October’s durable goods data.

Despite the shortened week we will be hearing earnings from the final Dow Jones Industrial component, HP.  In addition to HP, we can expect earnings from Medtronic, Barnes and Nobles, Borders, and John Deere.  This week the Treasury will be auctioning off a record $118 billion in two-, five- and seven-year Treasury instruments, which could place some pressure on bond markets.  However, so far demand for bonds, despite record issuances has remained in place, partially on the back of higher foreign demand.

Here is the rest of this week’s US calendar:

Monday, Nov. 23

8:30 a.m. EST: October’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding eight months but is expected to decline slightly in October from its reading of -0.81 in September.

10:00 a.m. EST: October’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Existing home sales could gain some upward momentum in October following a sharp rise in September’s pending home sales index, which rose 6.1%–this index has been up for eight consecutive months.  The current Bloomberg consensus forecast is for existing home sales of 5.70 million 5.57 million a month prior.

Tuesday, Nov. 24

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales.  Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure.  Last week’s number indicated a weekly decline of -0.1% in store sales compared to a decline of -0.1% a week prior.

8:30 a.m. EST: First Revision of 3Q09 GDP (Risk: Neutral, Market Reaction: Significant): It is likely that the BEA’s advanced 3Q09 GDP estimate of 3.5% will be revised down significantly due to a higher than anticipated trade deficit, lower non-residential investment, slower than expected inventory rebuilding, and a small markdown due to worse than anticipated personal consumption data.   The current Bloomberg consensus forecast is for the 3Q09 first revision GDP growth to come in at 2.8%.  This revision, especially if below the market consensus, could cause some market participants to start questioning the overall strength of the US economic recovery, however, the 4Q09 growth pace is still on pace to finish around 3.5%.  Looking ahead, stronger than anticipated inventory liquidations during the quarter will likely be made up during 4Q09 and the first part of 2010 helping buoy growth.  Looking further into 2010, growth should remain stable, but below trend.

8:30 a.m. EST: Third Quarter 2009 Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season.  However, since these profits tie into GDP growth they do not always move lock step with individual corporations’ aggregate earnings data.  In 2Q09 corporate profits reportedly grew around 5.7%.

8:55 a.m. EST: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales.  This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales.  According to the Redbook store sales were rose 2.0% last week on a year over year basis.

9:00 a.m. EST: September’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI has demonstrated four consecutive months of gains, during which it gained 5%.  However, on a yearly basis both the 10 and 20 city indices are still down roughly 11%.  Nevertheless, according to August’s data 19 of 20 cities reported improvements on their year over year declines.  We can expect to see some continued improvement in September.

10:00 a.m. EST: November’s Consumer Confidence (Risk: Neutral, Market Reaction: Marginal): The Conference Board’s measure of consumer confidence should remain relatively steady after plunging to 47.7 from 53.4 in October.  Last month’s sharp decline was mostly due to concerns over the labor market.  The Bloomberg consensus forecast for November’s release is a marginal decline to 47.0, but I should mention that individual forecasts range from a low of 44.0 to a high of 47.0

10:00 a.m. EST: Third Quarter 2009 and September’s Monthly FHFA Home Price Index (Risk: Neutral, Market Reaction: Marginal): The Federal Housing Finance Agency (FHFA) monthly/quarterly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s. According to the FHFA’s second quarter report housing prices fell 0.7%on a quarter over a quarter basis, or 6.1% on a yearly basis.  The FHFA’s monthly price index fell for the first time since April in August by -0.3%, but should turn positive again in September. 

10:00 a.m. EST: November’s Richmond Fed Manufacturing Index (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, but showed some signs of weakness in October falling from 14 to 7.   The new orders index, which tends to be a forward looking component, has fallen for three straight months this could potentially place some additional downward pressure on the headline index.  Aggregate changes in the Fed district’s manufacturing surveys could be a good indicator not only for the country’s economic health, but also ISM performance.

10:00 a.m. EST: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “[Last] month’s, institutional investors have paused to take stock,” commented Froot. “The Global Index reading of 108.4 remains comfortably above the neutral level of 100 for a seventh consecutive month, but underlying flows have been tempered somewhat from the very strong levels of July and August. While the US earnings season has been relatively robust so far, the number of positive surprises that have been observed in employment, retail sales, manufacturing and trade figures has diminished considerably, and this may be influencing investor risk appetite.”

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal): Despite only modest changes in the FOMC’s statement, analysts will likely be looking very closely at the motivation behind these nuances.  In any case, it is unlikely these minutes will provide any groundbreaking new information for market participants.

Wednesday, Nov. 25

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index.  Applications fell 2.5% last week after gaining 3.2% a week prior.  Unlike the week prior which saw a precipitous drop in purchase applications while refinance applications remained positive; last week’s data was negative all around, despite lower interest rates.  Refinance applications dropped 1.4%, while purchase applications fell and additional which 4.7%.  A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, thereby reducing the current demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months–don’t forget buying a house can be a long drawn out process.   Nevertheless, increased lending standards for FHA loans, due to the organizations worsening finances, could place some headwinds on the purchase index’s recovery.

8:30 a.m. EST: October’s Durable Goods Orders (Risk: Neutral, Market Reaction: Significant): Durable goods should experience a modest increase in October after gaining 1.4% in September on the back of relatively strong machinery and transportation equipment orders.  Weakness in October for civilian aircraft orders should place some pressure on index, with the current Bloomberg consensus forecast expecting a rise of only 0.5%.  It will also be important to keep an eye on the less volatile ex-transport index.

8:30 a.m. EST: October’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): An increment in auto purchases—after dropping sharply upon the expiration of the ‘Cash for Clunkers’ program–should help bolster consumer spending, which fell -0.5% in September.  This release will be important because it will be the first look into the consumer’s fourth quarter spending habits leading into the holiday season.  Personal income is expected to show a modest gain for the month, but still remain down around -2% on a year over year basis.  The current Bloomberg consensus forecast is for an increment in spending of 0.5%, and an increase in income of 0.2%.  At the same time, analysts are anticipating a modest jump in Core PCE of 0.2% after rising 0.1% in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims remain unchanged last week at 505K, after falling 12K a week prior. I should note there is again the potential for initial jobless claims slip below the psychological barrier of 500K this week, which could have the potential of at least temporarily influence trading.  Nevertheless, despite second derivative improvements these levels still indicate continued losses for monthly payrolls—albeit at a slower pace—coupled further deterioration to the unemployment rate, which has already exceeded 10%. The current Bloomberg consensus forecast is expecting claims to come in at 504K, essentially unchanged from last week.

9:55 a.m. EST: November’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): After a disappointing preliminary November release of 66.0, consumer sentiment will likely finish the month up only marginally to what the Bloomberg consensus forecast anticipates will be a level of 67.0.  Like the Conference Board’s measure a weakening job market—albeit at a slower pace—continues to weigh on consumer attitudes.  Also interesting to note is the fact that in every month since June final number has finished higher than the preliminary release.

10:00 a.m. EST: October’s New Home Sales (Risk: Neutral, Market Reaction: Significant): Like existing home sales, new home sales should continue to climb in October, but at a more modest pace.  The primary reason behind this is likely the fact that existing home sales can be bought at a more attractive price compared to their new home counterparts.  The current Bloomberg consensus forecast is for the rate of new home sales to increase to 410K from 402K a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories.  Large unanticipated swings in this index could have a significant impact on energy prices.  Last week this report showed a decline of -0.9 million barrels versus a gain of 1.8 million barrels a week prior.

12:00 p.m. EST: EIA Natural Gas Report (Risk: Neutral, Market Reaction: Moderate): This report highlights domestic natural gas inventories, which could have a significant impact on the energy sector.

Thursday, Nov. 26

Thanksgiving Markets Closed

Friday, Nov. 27

Black Friday

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness.  The market will pay close attention to the reserve bank credit component, which measures factors supplying   providing reserves into the banking system.  The Fed’s balance sheet ballooned last week to US$2.192trn from US$2.117trn a week prior on the back of higher agency and mortgage-backed securities holdings.    The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Enjoy the weekend!

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Mortgage Purchase Aps Realize a Precipitous Decline

November 12th, 2009 Michael McDonough 1 comment

The MBA’s mortgage application index rose 3.2% on a seasonally adjusted basis the week prior to November 6. The week’s positive performance was derived entirely from the refinance index, which rose 11.3%, while the purchase index dropped -11.7%–reaching its lowest level since December 2000.

A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, thereby reducing the current demand for mortgages.    However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months–don’t forget buying a house can be a long drawn out process.   Nevertheless, increased lending standards for FHA loans, due to the organizations worsening finances, could place some headwinds on the purchase index’s recovery.  The refinance index remains robust as current home owners continue to take advantage of attractive rates.

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US Economic Week Ahead: The Calm after the Storm

July 3rd, 2009 Michael McDonough Comments off

This week’s economic calendar is relatively quiet, especially compared to the hustle and bustle of last week. Monday’s non-manufacturing ISM report starts the week off, followed by Wednesday’s consumer credit report, Thursday’s jobless claims data, and Friday’s US trade statistics and consumer sentiment. The impact of this week’s non-manufacturing ISM report could be somewhat subdued since its release comes after June’s employment report; negating the importance the report’s employment index. But, significant declines or advances in the report’s business activity index could help shift market sentiment. This week’s big headlines, however, will likely be driven by the start of the 2Q09 earnings seasons, with Alcoa set to announce earnings on Wednesday. There is also a G8 summit taking place this week in Italy, which could produce some headlines. Here is this week’s US economic calendar:

Monday July 6th:

10:00AM: ISM non-manufacturing Index (Risk: Neutral, Market Reaction: Moderate/Marginal): The non-manufacturing ISM index will likely experience its third consecutive monthly rise. The current Bloomberg consensus for the index is 46.7 compared to last month’s reading of 44.0. The market would take any positive surprises to this index as good news echoing better than anticipated data in the manufacturing sector pointing towards a less severe recession. It will also be important to pay attention to non-manuf. ISM’s new order index, which tends to be a forward looking indicator for the primary business activity index. Since June’s employment report has already been released the employment index is essentially a non-factor.

Tuesday July 7th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downside, Market Reaction: Marginal): This weekly index tracks same store sales at major US retailers, account for roughly 10% of total sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a 1.6% increment in store sales over the previous week.

Wednesday July 8th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. A recent drop in refinancing activity caused this index to drop 18.9% on a weekly basis last week, while the level of mortgages to purchase new homes dropped by 4.5%.

3:00PM: Consumer Credit (Risk: Downside, Market Reaction: Marginal): Consumer credit has contracted quite severely over the past several months as saving rates rise and banks tighten consumer credit. The current Bloomberg consensus indicates a month over month change of –US$7.5bn compared to –US$15.7bn a month prior—the second biggest drop on record. Given recent deterioration in the employment situation and a drop in consumer confidence we could see this indicator disappoint.

Thursday July 9th:

Same Store Sales: (Risk: Downside, Market Reaction: Moderate): This monthly release breaks out same store sales data for individual retail chains. Like weekly the ICSC-Goldman Store Sales index, recent data supporting an increasing US savings rate and a worsening employment situation coupled with deep discounts at some stores, will likely place some downward pressure on same store sales.

8:00AM: Federal Reserve Governor Elizabeth Duke: Is speaking at the FDIC’s Interagency Minority Depository Institutions National Conference in Chicago. This could create some headlines.

8:30AM: Initial Claims (Risk: Neutral, Market Reaction: Significant): The current Bloomberg consensus forecast for initial claims is 610K versus last week’s number of 614K. It is likely that after Thursday’s disappointing employment data the market will become more sensitive to changes in claims, as it is an excellent forward looking indicator toward payroll data. I anticipate both initial and continuing claims data will improve as the month progresses.

Friday July 10th:

8:30AM: International Trade (Risk: Neutral, Market Reaction: Marginal/Moderate): The current Bloomberg consensus for the US trade balance is –US$28.8bn versus last month’s reading of –US$29.2bn. Recent increments in oil prices could add to the current deficit, while placing upward pressure on the import price index.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Marginal/Moderate): The current consensus on Bloomberg for the Reuters/University of Michigan Consumer Sentiment Index stands at 71.5 versus last month’s result of 70.8. The sentiment index is broken up into two parts, current conditions and future expectations. Investors are likely to focus more on this report after last week’s disappointing consumer confidence number. A positive or negative surprise in this index could impact the day’s trading.

10:00AM: Treasury Secretary Tim Geithner: Is set to testify before the House Financial Services and Agriculture Committees on derivatives regulation. This could create some headlines.

Have a good weekend!

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