The Day Ahead: Markets Anticipate Week of Sunny Data

Equities are looking to a strong open ahead of week that, according to economists, should be full of cheery data before Christmas Day. 

One hour before the opening bell, the Dow looks to open 40 points higher at 10,311 while futures on the S&P 500 are up 5.25 points to 1,103

Meantime, WTI Crude oil is up 36 cents to $74.78 per barrel and Spot Gold is up $0.90 cents to $1,114.10 per ounce.

“The U.S. dollar is broadly stronger (except against the Canadian buck), continuing its recent pattern of strengthening alongside a return of risk appetite—a sign of improved sentiment towards the greenback now that the U.S. economy is showing clearer signs of a durable recovery,” said economists at BMO Capital Markets in a morning note.

The key release to the four-day week is Durable Goods on Thursday morning. Those with an eye on real estate will also be anticipating Tuesday’s survey on existing home sales and Wednesday’s new home sales index. The consensus is for each of those entries to come in positive.

“Economic indicators are expected to roll in on the positive side next week, with November home sales expected to move up briskly, solid gains in November real consumption spending, and an uptick in consumer sentiment for December,” predict economists from IHS Global Insight.

Key Releases This Week:

Monday:

No major data released.

• Treasury Auctions:
• 11:30 ― 3-Month Bills
• 11:30 ― 6-Month Bills

Tuesday:

8:30 ― Gross Domestic Product for the third quarter is set to be revised down yet again, this time by one-tenth to +2.7% ― in the first estimate two months ago it was +3.5%.  The culprits for the expected downgrade are inventory and construction data, while on the upside new data on consumer spending has been more positive than previously thought.

Economists at IHS note that markets are unlikely to follow the results too closely. “[T]he third quarter figures are ancient history at this point, and what matters more now is that fourth quarter growth is shaping up at around 4% as the inventory cycle turns upwards.”

10:00 ― While the GDP data is unlikely to shake markets, the Existing Home Sales could. No matter what the number is some analysts are bound to be surprised as estimates are all over the map. The “consensus” is for the annualized rate to jump from 6.10 million to 6.25 million, but predictions range from 5.20 million to 6.34 million.

Analysts from Nomura are on the pessimistic front: “We forecast existing home sales to decline sharply in November due to the initially scheduled expiration of the first-time homebuyer tax credit. Specifically, we look for a decline of about 15% to an annualized rate of 5.2 million units.”

In total contrast, economists at IHS are expecting “a last burst of sales in November,” based on the 3.7% uptick in October's Pending Home Sales Index. However, their broader outlook isn’t much different. “Given that the Mortgage Bankers Association's Purchases Index fell to its lowest level since 1997 during November, sales are likely to plunge in December, despite the extension and expansion of the tax credit.”

• Treasury Auctions:
• 11:30 ― 4-Week Bills

Wednesday:

8:30 ― The Personal Income & Outlays survey provides data on income, spending, and inflation. In November analysts look for gains in both income (+0.5%) and spending (+0.65) while inflation is set to rise a benign 0.1%. That’s not bad for retailers staring at the data in hopes for an optimistic holiday spending period.

“Based on the large increase in November retail sales, personal consumption expenditures ― which are broader, covering spending on services ― should be up a healthy 0.7%, the second such gain in row,” said economists at Deutsche Bank. “We estimate current quarter consumer spending at 3%, about the same as last quarter’s 2.9% pace.”

“Looking forward,” analysts from BBVA added, “personal income is beginning to recover from its decline in the beginning of the year. While levels remain low, the change in trend is expected to inspire consumer confidence, which will 20 support the resumption of demand.

In the nonfarm payrolls employment report, November’s average workweek increased by 0.6% and hourly earnings were up 0.1%. “These gains should translate into solid gains in private wages and salaries in the personal income accounts,” write economists at IHS. 

As for inflation, IHS notes that the core PCE measure should stay “well inside the Fed's comfort zone” at +1.5% year-on-year.

8:30 ― Consumer Sentiment jumped beyond expectations in the preliminary report and analysts don’t see any reason for change in the final reading. The Reuters/U of Michigan survey climbed from 67.4 in November to 73.4 ― the gain was mostly due to a rise in the current conditions index, a predictable response to last month’s employment report and hey, maybe a little seasonal cheer too.

“As the national economic recovery continues and job losses diminish, consumers are becoming more optimistic about their finances and prospects for the year ahead,” write economists from IHS Global Insight. “Price discounts by retailers throughout the holiday shopping season are contributing to favorable assessments of buying conditions.”

10:00 ― New Home Sales climbed by 6.2% to 430k annualized in October. Predictions for November are less optimistic but the trend is at least in the same direction. Forecasters expect a pace of 440k, and the overhang of new supply ― currently at the lowest level in nearly four decades ― should shrink from the 6.7 months of supply.

Analysts from Nomura said that sales remain “extremely low” and, contrary to the consensus view, they look for the annualized pace could to 422k.

“By region, sales in the South look most susceptible to a decline. Sales of new homes in the South rose by 23% in October - their largest one-month gain since 1995,” they wrote.  “Beyond this temporary ‘payback’ we believe new home sales remain on an upward trajectory.” 

Thursday:

8:30 ― The week’s key release should keep markets upbeat as the week comes to an early close. Durable Goods are set to rise 0.5% in November, with some analysts looking for a jump as high as 1.5% following the 0.6% dip in October. Even analysts on the more pessimistic side of things believe core orders will be on the rise, noting that it’s a lack of orders from Boeing that could skew the results downward.

“Core capital goods orders (nondefense capital goods ex-aircraft) look set to bounce back strongly after declining in October,” predict analysts from Nomura, who look for the headline to advance a mild 0.1%. “For the broader outlook, the durable goods reports will be an important indicator for determining whether business confidence has returned. For now it seems that uncertainty about the outlook has kept capital spending plans on the shelf.”

Analysts from BBVA add: “While durable goods orders are expected to rise, they will remain at levels below those of last year. As a result, we could expect to see a modest improvement in the equipment and software component of non-residential investment.”

8:30 ― Jobless Claims saw a five-week run of moderation before rising the past two weeks, most recently to 480k. Fortunately, a third rise of initial filings is expected only by a minority of economists whereas the median estimate is for 470k claims.

“This is a typical pattern for these volatile data and we therefore have not read too much into recent results,” write economists at Nomura. “We continue to believe initial claims are on a steady downtrend (the four-week moving average has had uninterrupted declines since September) and anticipate a moderate drop for the current week.”

Friday:

All Markets closed for Christmas Day. Happy Holidays!