Financial Markets Summary For The Week of September 22-26

The week of September 22-26 will see a modest week of US macro data. However, given the dislocation in the markets, the upcoming week will provide a test to see if recent steps taken by global central banks and the immanent mergers of large financials can inject a measure of confidence and stability into markets. The major data releases for the week will be the publication of the existing homes sales and new home sales data for August on Tuesday and Thursday respectively. The durable goods report will be released on Wednesday and the weekly jobless claims report will be published on Thursday. The week will conclude with the final estimate of Q2'08 GDP and the consumer sentiment report from the University of Michigan.

Fed Talk

In light of the recent upset in financial markets caused by the collapse of Lehman and the problems at AIG the market will observe the most important week of Fed Talk in some time. The major event for the week will be the testimony of Fed Chair Ben Bernanke and U.S. Treasury Secretary Paulson on the takeover of Fannie and Freddie on Thursday before a House panel. Dallas Fed President Richard Fisher will speak on the economy and financial industry on Monday. Fed Governor Warsh will give the keynote speech at the Chicago Fed's annual international banking conference on Thursday. St. Louis Fed President Hank Bullard will speak on the economic outlook Friday.

Existing Home Sales (August) Tuesday 10:00 AM

Sales of existing homes during the month of August should see a modest increase on the back of the sale of foreclosed properties selling at distressed prices and slight decrease in the cost of a 30 year fixed mortgage. Our forecast implies that sales of existing homes should come in at 5.09 million for the month of August. However, with the stock of existing homes still standing at 11.2 months the rate of sales needs to pick up to adequately address the number of homes currently on the market and those on the way through foreclosure or normal cyclical activity. The seizure of Fannie Mae and Freddie Mac by the U.S. Treasury has been the primary catalyst behind the recent decline in the 30yr fixed mortgage rate that should be partially captured by the September report which will be impacted by the seizing up of short term credit markets in the aftermath of the failure at Lehman.

Durable Goods Orders (August) Wednesday 08:30 AM

After three straight months of growth, we anticipate that the durable goods orders for the month of August should decline by -1.3%. on the back of a month of weak orders of civilian aircraft and a moderation in global demand. The core ex-transportation estimate should come in flat as the demand for machinery, primary and basic metals continue to be solid.

Initial Jobless Claims (Week ending Sep 20) Thursday 08:30 AM

Jobless claims should see a slight moderation to 450K for the week ending September 20. According to the Department of Labor, for the week ending 13 September if it were not for the increase in claims in Louisiana due to hurricane Gustav, the headline would have declined for the week. However, continuing claims should move higher to 3.501mln.

New Home Sales (August) Thursday 08:30 AM

New home sales should see a second straight month of improvement on the back of a modest decline in the cost of a 30yr fixed mortgage. The flexibility to attract new consumers on the part of the development community has pushed the inventory rate down to 10.1 months, down from the peak of 11.2 months seen in March 2008. However, going forward the recent decline in the cost of long-term mortgage rates may be partially offset by the disturbance in domestic credit markets following the bankruptcy of Lehman.

U.S. GDP Final Estimate (Q'2 2008) Friday 08:30 AM

The final estimate of economic output during the second quarter of 2008 should see the rate of growth hold steady at 3.3%. Given the events of recent days, whatever positive momentum from the increase in growth inspired by the combination of the fiscal stimulus and demand from the external sector should wither. We anticipate that the market will look at the rate of growth as one decisively located in the rearview mirror and not have any substantial reaction to it.

University of Michigan Consumer Sentiment (September-Final) Thursday 10:00 AM

The decline in the cost of gasoline prices throughout much of the country and the fall in the price of imported oil were the primary catalysts behind the above expectations increase in the preliminary release. Of interest to the market will be the reaction among consumers to the recent upset in the market in the aftermath of the bankruptcy at Lehman. We think that this will serve as a factor in causing consumer sentiment to retreat to 63.9 for the month of September.