The Day Ahead: Gains Expected from Durable Goods, New Home Sales
Investor sentiment is cautious ahead of the Durable Goods release at 8:30 and the New Home Sales report at 10:00. Equity futures are looking slightly downward, with the S&P 500 down 3 points to 1,023, more than erasing yesterday’s modest 2.4-point gain.
Both data reports are expected to bring good news. Before the two releases, the Mortgage Bankers Association said its Market Composite Index ― which tracks the volume of mortgage applications ― advanced 7.6% last week, a nice touch to the 5.6% gain in the week before. The gain occurred despite a minor rise in mortgage rates.
Key Releases Today:
8:30 ― New orders for Durable Goods are expected to rise 3.0% in July after a 2.5% loss in June, partly on account of rising sentiment in various manufacturing indexes.
Core orders are set to rise 0.8%, half the pace of the 1.6% gain in June.
“The transportation component may experience a boost from the Cash for Clunkers program as auto dealers need to replenish inventories,” note economists from BBVA. “Although orders are expected to remain weak, an increase in this component could signal that the decline in industrial production could ease in the third quarter.”
Analysts at IHS Global Insight expect new orders to almost double the consensus forecast, based on a boost from non-defense capital equipment orders ― a bellwether indicator.
“Durable goods orders should climb a steep 5.6% in July,” they said in a weekly forecasting note. “Boeing took more orders than were cancelled, defense ordering should have rebounded after a June drubbing, and light vehicle producers were back at their desks taking orders after bankruptcy-related shutdowns in June.”
10:00 ― The housing market received a boost when New Home Sales posted an 11% advance in June (the fastest growth rate in 9 years), which put the annual pace of sales to 384,000, its highest rate this year. An additional 5% gain is expected for July, as buyers take advantage of heavily reduced prices and first-time home-buyers receive an $8,000 government tax credit.
In Sunday’s New York Times, it was reported that some buyers have “even been able to pull off a ‘triple whammy’ — taking advantage of auction prices lowered to sell, plus the tax credit, plus the F.H.A.-approved smaller down payment.” (An F.H.A.-approved loan allows buyers to put down as little as 3.5% of the purchase price. See story here)
Looking forward, some analysts are concerned that the factors driving the recovery now will also hurt the potential for recovery later.
“Although levels remain extremely low compared to those of last year, the rate of decline is easing, which is an indication of stabilization in the market,” said economists at BBVA. “Nevertheless, the greatly discounted prices of existing homes could present a risk to the recovery of the new homes market because buyers are seeking the best deal.”
Similarly, Patrick Newport and Nigel Gault from IHS Global Insight said the government tax credit, which expires on November 30, appears to be having a significant impact, but it may just be shifting potential sales from the Fall into the Summer. “If this is the case, and if the credit is not extended, sales will take a hit after the credit expires.”
11:30 ― Dennis Lockhart, president of the Atlanta Fed, addresses the Chattanooga Area Chamber of Commerce in Chattanooga, Tennessee.
Treasury Auctions:
1:00 ― 5-Year Note Auction
Before the bell, equity futures are trading lower ahead of heavy data releases, following a 1.78% gain in China’s benchmark Shanghai index. In fixed income, the benchmark 10-year yield is trading lower at 3.44%, compared with 3.51% in the early afternoon yesterday.