Financial Markets Summary For The Week of July 21-25

The week of July 21-25 will see a modest week of economic data that will take a back seat to corporate earnings statements. Earnings from the financial (Bank of America, Wachovia, and WaMu), airline (US Airways and Jet Blue), and auto sector (Ford and GM) will shape sentiment and be the primary movers of markets during the upcoming week. Other market bellwethers that can move the market such as Caterpillar, Yahoo, Boeing and Ely-Lilly will also provide earnings announcements. The week in macro data will kick off with the publication of the Fed Beige Book on Tuesday. Thursday will see the release of the weekly jobless claims series, existing homes and durable goods orders for June. The week will conclude with the publication June new home series and the final estimate of the UMICH consumer confidence survey for July. The week will see a light week of Fed talk, with FOMC Gov's Mishkin and Kohn addressing the markets on Wednesday.

Fed Talk

The week in Fed talk will see Philadelphia Fed President Plosser speak on the US economy Tuesday. Wednesday will see two FOMC Gov's Mishkin and Kohn speak. Mr. Kohn will speak on communications policy and transparency and Mr. Mishkin will speak on a topic that has yet to be determined.

Chart of the Week

Fed Beige Book (June-July) Wednesday 02:00 PM

The Beige book for the period covering mid June through mid July should reflect the fairly decent boost in personal consumption on the back of the fiscal stimulus package. While that has temporarily provided support for economic activity, much of the action stimulated by the arrival of the rebates occurred in basic household items, health and beauty and gasoline. The combination of the increase in personal consumption and demand from the external sector should set the stage for a reasonably healthy Q2 GDP. However, we also expect the beige book to reflect that fact and also to provide the market with an indication to reflect the occurrence of another bout of stressed credit markets, the record increase in energy prices, the sizeable decline in the equity markets and the market dislocation caused by the Fannie Mae and Freddie Mac bailout. The combination of these events will provide a significant deadweight on overall economic activity in the second half of the year.

Initial Jobless Claims (Week Ending July 19) Thursday 08:30 AM

Initial claims should continue to trend upward for the week ending July 19. A quick look at the labor sector reflects the growing concerns over the continuing problems in the goods production and manufacturing sector. Moreover, the time it takes for a displaced worker to find a new position continues to grow as reflected by the consistent surge in the continuing claims series. We anticipate that initial claims will arrive at 385K and continuing claims will push 3.25mln for the week.

Existing Home Sales (June) Thursday 10:00 AM

In what should traditionally be the best month of purchasing activity during the calendar year, we anticipate that the sale of existing homes will fall to 4.91mln for the month of June. The three-month trend in sales stands at 4.94mln and we do not see any real catalyst to drive the number back above 5.0mln at this time. On an annual basis, total sales are down -15.9%, the sale of single-family homes has declined -15.4% and the purchase of condo/coops has dropped 24.6%. Of course, the real problem remains the existing stock on the market, which stands at 10.8 months, just above its three-month average of 10.7 months. With much of the current activity located in the REO sector, homeowners are going to have reduce asking prices in a much more vigorous fashion to begin working off the elevated level of inventory.

Durable Goods Orders (June) Friday 08:30 AM

We have become quite bearish on the manufacturing sector and we are less than enthusiastic about the prospects for durables in June. Orders for civilian aircraft stand at 62, which should provide a very low ceiling for what looks to be another mild month of orders for durable goods. Our forecast implies a flat reading in the headline and a -0.3% decline for durables ex-transportation.

University of Michigan (July Final) Friday 10:00 AM

At this point, it does not really matter if consumer sentiment drops five points or increases five points. The fact of the matter is that consumer sentiment is about as bad as one can ever expect to observe. Our forecast implies that consumer confidence will decline to 56.5, but the truth is that until the price of gasoline begins to ease and the median price of a home stabilizes there does little on the horizon to act as a catalyst to move sentiment back towards anything resemble normal.

New Home Sales (June) Friday 10:00 PM

We expect that June will see another month of declines in the new home sales sector. We expect that the building community will see purchasing activity decline to 497K vs. the 512K recorded previously. The major story in the housing sector continues to be the elevated level of inventories. With the large number of completed projects still entering the market, this is depressing prices at a time when the potential buyers are still in the process of recalibrating expectations over returns on investment in residential real estate assets.