The Day Ahead: Bernanke Reappointment, Case-Shiller, Consumer Confidence, Treasury Auction
The big headline this morning is that President Obama plans to keep Ben Bernanke as chairman of the Federal Reserve. “Mr. Obama's decision had become a subject of growing speculation and uncertainty in financial markets and in Washington policy circles,” according to the Wall Street Journal, who said Obama will make the announcement from Martha’a Vineyard, Mass., later today.
The decision appears to be surprising to some on the political left, as Bernanke is a Republican who some blame for not preventing the crisis. But it would be a poor tactic to swap the Fed chairman, a scholar of the Great Depression, just as the economy turns; and the fact that he’s a Republican, particularly a non-partisan one, also helps Obama’s bi-partisan image.
Chris Dodd, chairman of the Senate Banking Committee, said that he has disagreed with Bernanke on many occasions, but he is “probably the right choice” at this time. After Obama’s nomination, Bernanke must be confirmed by the Senate.
Markets seem pleased by the decision, as equity futures point a little higher following a weak afternoon yesterday, which saw the morning’s gains erased.
The key releases for markets today are two housing prices reports, beginning with the S&P Case-Schiller index at 9:00, followed an hour later by the less-important FHFA index. Also at 10:00 is the Conference Board’s Consumer Confidence index, which also gives valuable data on how consumers are feeling about the job market. More on data below.
Key Releases Today:
9:00 ― More good news from the housing market is expected in the form of the S&P Case-Shiller Home Price Index, which should indicate that average price declines across 20 metropolitan areas were moderating as of June. Going forward, that will only be good news if potential homebuyers are still attracted to the market, as new and existing home sales have been driven by the allure of reduced prices.
In last month’s survey, home prices posted their first monthly gain (+0.5%) in almost three years, with annual declines at an average of -17%. “The change in momentum here is very significant,” commented Robert Shiller, co-creator of the index, at the time. Still, he expects prices to remain near current levels for the next five years.
“A flat month would pull the yearly rate of decline below -17% for the first time since the Lehman disaster, suggesting that house prices are at least groping for a bottom,” said analysts from BMO Capital Markets, who expect the print to be -16.5%.
10:00 ― There doesn’t seem to be much room for Consumer Confidence to move this month. Continued gains in the stock market and a wildly successful Cash for Clunkers program could boost sentiment, but will that outweigh a 9.4% unemployment rate and rising jobless claims? Analysts think so, but the impact will be mild. The median forecast from economists looks for a 47.6 score this month ― a one-point improvement from July.
“Amid additional signs of stabilization in the economy and the better than expected non-farm payroll and unemployment results, consumer confidence is expected to rise in August after dropping in the two previous months,” said the forecasting team at BBVA. “Nevertheless, it will remain at a low level because consumers continue to suffer from a weak labor market and tight credit markets. As a result, consumption is expected to remain weak in the third quarter.”
10:00 ― The FHFA House Price Index is unlikely to receive much attention as the more important S&P index is released just an hour before. But analysts will want to see if the two reports are consistent. The median forecast expects to see the annual price decline moderate to -5% from -5.6% in June.
Analysts at BMO Capital Markets explain why the two measures report such different figures: “The FHFA measure is derived from conforming conventional mortgages, whereas the Case-Shiller considers a broader spectrum (they pull data right from the county offices),” they said in a morning note. “Also, the Case-Shiller measure is value-weighted (FHFA is equally weighted) so more expensive homes have a bigger impact on the index.”
1:00 ― The Treasury Department will auction $42 billion 2 yr notes. The Mortgage News Daily MBS Commentary blog will cover results.