The Day Ahead: Housing Starts, Jobless Claims, Philly Fed Survey, TSY Supply
Equity futures are pointing up this morning as investors hope to keep the rally going for a fourth straight day. Since Monday the S&P 500 has gained 32.2 points, or 3.11%, pushing the index to a new 11-month high. Futures are currently extending those gain by 1.7 points.
Appetite for equities has strained the US dollar, which sits at yet another 2009 low this morning. Gold is trading near record highs at $1020 per ounce, and natural gas prices are “simply on fire ― up 50% in the past two weeks, though down slightly overnight,” as Sal Guatieri from BMO put it.
Treasuries were mostly unchanged overnight but the 10-year yield fell two basis points to 3.45%, despite the strength in equities and modest inflation.
A quick look at today’s schedule shows it’s a busy day ahead. Two key releases ahead of the bell are jobless claims, which are set to bounce up from a seven-week low, and housing starts, which are set to advance to an annualized pace of 600,000 new units.
“You might think it odd that builders are responding to a modest rise in sales by increasing their production, given the still-huge inventory overhang,” said Ian Shepherdson at High Frequency Economics before the release. “But it seems pretty clear that many of the properties in inventory are the bigger homes which are still not in much demand. If you want to make money when first-time buyers are the only game in town, you need to build the smaller homes they want.”
Outside of data, the Wall Street Journal reports this morning that some government regulators may shift from the using major ratings agencies because of their inability to accurately judge the financial system’s collapse.
“Ratings firms including Standard & Poor's and Moody's Investors Service are facing fresh dissent from state insurance regulators, who are considering moving away from the firms ratings' as a way of measuring the health of insurer portfolios of mortgage-backed bonds,” the newspaper said.
Also, speaking last night, former Federal Reserve chairman Paul Volcker said the economy was only in the early stages of recovery and it would take years for the labor market to return to normal.
“It will be a long slog ― a matter of years ― with the risk of some relapses along the way,” he said. More here.
Key Releases Today:
8:30 ― New projects to build single-family home have risen for the past five months, including gains of 5% or more in the past four months. However, multi-family units have been struggling, which brought the overall figure for Housing Starts down 1% in July. Things are looking better for August as single-family units are expected to keep increasing, while multi-family units may have bottomed out. The median forecasting expects total housing starts to advance from an annualized pace of 581,000 in July to 600,000 in August.
“Multi-family permits fell to an all time low in July (data start in 1959),” note economists at IHS Global Insight. “Mathematically, they cannot fall much further, and for August we project a small gain.”
8:30 ― New Claims for Unemployment Insurance fell 26,000 to 550k last week, the lowest level in seven weeks. Rather than triggering a new trend in the labor market, however, analysts expect initial claims to bounce right back to 575k in the week ending Sept. 12 ― the survey week for nonfarm payrolls.
Going against the trend are analysts from BMO, who look for a 15k decline to 535k, a low since mid-July.
“This would represent a meaningful decline in new claims between payroll survey periods, suggesting September nonfarm payrolls could crack the 200,000 mark on the downside for the first time in the post-Lehman era,” they added.
10:00 ― Like its cousin index in New York, the Philadelphia Fed Survey shot into growth mode last month, and analysts look for continued improvement in September. Forecasters look for a score of 8.0, but the risk is on the upside after the 7-point advance from the Empire State survey on Tuesday.
“Inventory dynamics and trends in auto activity should have continued to boost manufacturing activity toward the end of the third quarter,” said analysts at RDQ, expecting a 7.0 reading for the survey.
If both indexes are pointing towards continued gains, investors could get optimistic that the nationwide ISM survey will post another record of strong growth when it is released in the first week of October.
11:00 ― the Treasury Department will announce the terms of next week's 2s/5s/7s auctions. $43billion, $40 billion, and $29 billion are the expected auction amounts. Treasury auctions continue to see decent demand regardless of the optimistic smoke signals that stock traders are sending.