The Day Ahead: Housing Prices and GDP Revisions

With stocks falling across Asia ― the Nikkei closed down 1%, the Hang Seng lost 1.5%, and China’s CSI shed 3.2% ― one should be pretty optimistic that equities in the US are looking flat.

After climbing 1.29% and 1.36% yesterday, the Dow looks to open at 10,451 this morning while the S&P 500 should open at a steady 1,106.

Meanwhile, the US$ index slightly stronger this morning, oil is unchanged at $77.50, and spot gold is trading $4 higher at $1,170.

In terms of data, today and tomorrow are extremely busy as schedules were compacted into the three-day week (stock markets are open Friday but no data is released). As with yesterday, housing will be today’s focus after the markets begin with a revised look at Q3 GDP.

Key Events Today:

8:30 ― Even with the jobless pool expanding, Gross Domestic Product rebounded strongly in the third quarter. Unfortunately, the first set of revisions are expected to trim the reported 3.5% pace down to just 2.8% on account of trade figures and weak retail inventories. 

Analysts from Nomura Global Economics believe a full percentage point will be cut from the advance estimate of GDP, based on downward revisions to personal consumption, non-residential fixed investment, and net exports. “Note, however, that weaker inventory growth in Q3 implies strong growth in Q4, and we have revised up our Q4 forecasts accordingly.”

Revisions are not expected to impact the price index, which advanced a subdued annualized rate of 0.8% in the quarter.

9:00 ― The S&P Case-Schiller Home Price Index has risen in each of the past four months, including a 1.2% gain in August and a 1.6% gain in July. The current trend suggests “considerable upward momentum in home prices,” according to analysts from TD Securities, and the trend should continue in September.

Analysts from BMO give some broader context. “After sliding 33% since mid-2006, the S&P Case-Shiller home price index has climbed in the past four months, supported by rising demand and shrinking supply. An expected 0.5% gain in September would slow the yearly rate of decline to -9.0% from -11.3%. Despite the upturn in prices, affordability remains attractive as mortgage rates have drifted lower since the spring. Given the boost to confidence, the upturn in prices may actually buoy demand in the near term.”

10:00 ― Weak perceptions of the job market drove the Conference Board measure of Consumer Confidence down 5.7 points in October, and with the unemployment rate now in double digits the Street isn’t expecting any rebound in November. The index is expected to fall from 47.7 to 47.0, which some of the economists polled by Bloomberg looking for a 44.0 score. Many eyes will be on the present conditions component, which dipped to a cyclical low of 20.7 last month. 

“The October confidence report revealed a large decline in households’ assessment of the economy, likely due to the prolonged labor market downturn and recent rise in oil prices,” wrote analysts from Nomura. “The index representing current economic conditions reached a new record low. A lack of job growth may weigh on confidence for some time.”

With expectations this low, retailers have little reason to be optimistic for the holiday shopping season.

10:00 ― The FHFA House Price Index is less closely watched than the S&P Case-Shiller index, largely for sampling reasons. The FHFA index only looks at the prices of homes that were backed by Fannie Mae and Freddie Mac; by doing so, the index excludes the subprime mortgages that were so instrumental in the crisis.

2:00 ― There was little of interest in the last communiqué from the Federal Reserve to it seems unlikely that the expanded version ― the FOMC Minutes ― will be much different. The dovish statement reiterated the policy will remain accommodative and that inflation expectations are low, and the statement had no dissenting voices from the 10 voters.

“We expect the minutes to reflect broad expectations of a muted economic recovery as policymakers remain wary of potential downside risks,” said Joseph LaVorgna from Deutsche Bank. 

• Treasury Auctions:
• 11:30 ― 4-Week Bills
• 1:00 ― 5-Year Notes