Financial Markets Summary For The Week of July 7-July 11
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The week of July 7-11 will see a light week of data on the calendar that will feature a speech by Fed Chair Ben Bernanke on Tuesday and a cluster of data to be released on Friday that will feature June import prices, the monthly trade balance and US budget statement for May and the preliminary estimate of consumer confidence for July by the University of Michigan. Tuesday will see the release of pending home sales for May and Thursday will feature the weekly release of initial jobless claims and the publication of the ICSC chain store sales data. Corporate earnings announcements that may move markets during the week will be the releases at Pepsi on Monday, Chase and Chevron on Wed. The week will conclude with perhaps the major event of the week; the release of the earnings statement at General Electric on Friday.
Fed Talk
The week of July 7-11 will see a light week of Fed talk. Fed Chair Ben Bernanke will give the keynote address at a FDIC forum on mortgage lending to low and moderate-income households on 8 July. That same day Richmond Fed President will speak on the economic outlook in Washington DC. July 10 will see SF President Yellen speak before community leaders in Portland.
Chart of The Week
Pending Home Sales (May) Tuesday 10:00 AM
The month of May saw mixed results in the housing sector, with purchasing activity advancing in the existing home series, but falling back in the new homes series. The combination of falling prices and historically reasonable 30-year mortgage rates provided enough of a catalyst to obtain barely passable sales figures in what should be the primary month in the summer buying season. Yet, we do not expect that to continue in June. Because lending is still very tight and consumers wary of buying property we expect that downward trend in pending sales will reassert itself in June. Our forecast for the month of May suggests that pending sales should fall by -1.5%
Jobless Claims (Week Ending 28 June) Thursday 08:30 AM
Over the past few weeks inside the initial jobless claims series the market has observed the four-week moving average continue to climb towards 380K. We think that the continued shedding of jobs and what looks to be another painful bout of culling in the auto industry does not portend a turnaround in the labor sector anytime soon. For the week ending June 28 we expect that initial claims will arrive at 380K.
Trade Balance (May) Friday 08:30 AM
The sharp increase in the cost of oil should send the nominal trade deficit up to -$61.5bln for the month of May. However, ex-petroleum and the trade balance adjusted for inflation should continue to see improvement. On an annualized basis, the ex-petroleum trade component has observed a 30% improvement and the real adjusted goods balances have seen a 17% increase in purchases from abroad. This has been driven by the fall in the dollar and the fairly robust growth in the emerging world. Sectors that have profited from this improvement have been exports of telecom equipment, civilian aircraft and computer accessories. We expect this to continue in May.
Import Prices (June) Friday 08:30 AM
The painful increase in the cost of oil and commodities observed by the market in June should be on display. Our forecast implies a month over month increase of 1.8% and a year over year advance in the cost of imported goods of 19.5%. Many of the major trading partners of the US still peg their currencies to the dollar and are quite hesitant to either de-link from the dollar or curb domestic demand to facilitate a soft landing for the US. Thus, global inflation has reached critical levels and the Fed is not well positioned at this time to do much about it. There is little left to say.
University of Michigan (July Preliminary) Friday 10:00 AM
How low can consumer confidence go? Well a dive towards 50 is not out of the question, but not quite yet. We think that consumer confidence will fall to 55.3 in the July preliminary estimate. When it comes to consumer sentiment the song remains the same. Falling home prices, sharp increase in gas prices, tight money and declining prospects in the labor market are all combining to depress consumer sentiment. Until two or more of the aforementioned factors obtain some relief, consumer confidence will continue to bounce along multi-year lows.
US Budget Statement (June) Friday 02:00 AM
Second quarter tax payments typically provide a surge in receipts that send the monthly budget modestly into the black. We anticipate that this will be the case in June when the monthly deficit will swing back into the black to the tune of 17.2bln. This does not signal that the slowdown in the economy is over. Rather, our assessment is that the increase in receipts will be well below the current market consensus and that the major budget problem faced by the Washington will only grow worse.
