The Week Ahead: Home Prices, FOMC Meeting, Q1 GDP, Treasury Auctions

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Stock markets are looking to open the final week of April looking up after the benchmark S&P 500 added 2.1% last week.

Positive earnings results were the main driver of those gains “as a whopping 84% of S&P 500 companies so far ... have beaten expectations,” said economists at BMO Capital Markets. They noted that the historical norm is just 66%.

One hour ahead of the opening bell on Monday, Dow futures are up 33 points to 11,175 and S&P 500 futures are trading 2.25 points higher at 1,214.50. The 2 year Treasury note is +0-01 at 99-29 yielding 1.045% and the 10 year note is +0-06 at 98-20 yileding 3.794%.

The commodities picture is mixed: WTI crude oil is up 32 cents to $85.35 per barrel, while Spot Gold is off $1.60 to $1,156.00.

In terms of economic data, the week opens on a slow note. But Tuesday’s home price index should be closely watched, Wednesday’s monetary policy meeting for the Fed will make global headlines, and first-quarter GDP late in the week will have broad implications.

Monday:

No major economic data.

Treasury Auctions:

 

  • 11:30 ― 3-Month Bills
  • 11:30 ― 6-Month Bills
  • 1:00 ― 5-Year TIPS (Treasury Inflation-Protected Securities)

 

Tuesday:

9:00 ― A watershed moment is expected to be seen in the S&P Case-Shiller Home Price Index for February. Economists expect the index to see year-to-year home prices increase for the first time in 37 months, or since December 2006. However, the month-to-month numbers are set to fall 0.1%, and demand for housing is still expected to be only moderate in the medium term.

“The turn higher reflects strong growth last summer as well as more moderate declines in recent months vs. the week price performance seen in late 2008/early 2009,” said economists from Nomura. “On a month-over-month basis, we expect the non-seasonally adjusted index to decline by 0.5% (we believe the non- seasonally adjusted index is a better measure of house price trends due to structural changes in the housing market). Overall house prices – by this and other measures – look broadly stable.”

10:00 ― The Conference Board’s measure of Consumer Confidence is expected to rise in April, but only by 1.3 points to 53.5. Positive factors include the recent upturn in the labor market, rising retail sales, and strong GDP growth. But job growth is still expected to be slow in the months ahead, dampening the chances of a multi-point increase.

“Consumer confidence is expected to pick-up slowly,” said economists at BBVA, predicting a score of 54.3. “Over the past eleven months, confidence has remained flat, hovering around an average of 52, and April’s results will fall in line with that trend.”

Treasury Auctions:

 

  • 11:30 ― 4-Week Bills
  • 1:00 ― 2-Year Notes

 

Wednesday:

2:15 ― The FOMC Meeting Announcement should deliver more of the same. Few economists are predicting a rate hike in the coming months, so the question for this meeting is whether the Fed will continue to say that rates will remain low “for an extended period.” Also of interest will be whether there is any growing dissent from within the Fed.

“With core inflation falling and substantial excess capacity in both the production sector and labor markets, there is no compelling reason for any change in the Fed's current stance on monetary policy,” said economist from IHS Global Insight. “Long-term yields in recent weeks have been under pressure due to increased sovereign risk perceptions, and that has put some mild upward pressure on mortgage rates. The Fed needs to keep a steady hand on the tiller in order to forestall any sudden reaction from the market that could send yields even higher and upset the nascent recovery in the housing market.”

Eric Green, economist at TD Securities, said not to expect a rate hike anytime this year.

“In the best of all possible worlds the Fed may prefer to have rates around 1.0% if only to have more policy options down the road. However, economic conditions remain too fragile, the outlook too uncertain, and political realities too stark to make higher rates a high probability event this year.”

 

  • Treasury Auctions:
  • 1:00 ― 5-Year Notes

 

Thursday:

8:30 ― Initial Jobless Claims are set to fall from 456k claims to 447k in the week ending April 24. The drop will be welcome, but it only represents a return to the March average. Moreover, to reflect overall labor growth in the economy the survey needs to see claims below 450k for a sustained period.

“Initial jobless claims declined sharply in the latest week after a spike in the first two weeks of April,” noted economists from Nomura. “The decline confirms that the early rise had reflected technical factors – seasonal adjustment problems around the Easter holiday and the clearing of a filing backlog in some areas – rather than a fundamental deterioration in job market conditions. This week, we expect the steady downward trend in claims to resume.”

 

  • Treasury Auctions:
  • 1:00 ― 7-Year Notes

 

Friday:

8:30 ― The National Bureau of Economic Research refused to say recently whether the economy had exited the recession, but it should be broadly agreed upon once GDP advances for the third straight quarter, as it is expected to do in this report. First-quarter growth is anticipated to rise 3.4% following the 5.6% gain in the fourth quarter and 2.2% increase in the third quarter. The positive headline should be bolstered by strong retail sales, but held back by weak inventory growth.

“Inventories added 3.8 percentage points to fourth-quarter growth, and we think they will add 0.9 percentage point to first-quarter growth,” said analysts at IHS Global Insight. “Final sales growth should improve to 2.3% from 1.7%, with consumer spending (up 3.5%) leading the way.”

The analysts also pointed towards improvement in business equipment and defense spending, while foreign trade should be a small drag as imports rise faster than exports.

“The big drag on growth will come from construction ― residential, nonresidential, and state and local construction activity should all show sharp declines,” they added. “Since the message from most high-frequency indicators is that the economy gained momentum as the first quarter progressed, the second quarter should see stronger growth than the first.”

9:45 ― The Chicago Business Barometer, a measure of manufacturing and services in the Midwest, is expected to post growth for the seventh consecutive month in April. After dipping slightly to 58.8 in March ― a score well above the 50-marker of growth ― the index should return to above 60.0, where it stood in the first two months of the year. In addition to strong new orders in March, a forward looking component, forecasts are optimistic in part because the Empire State and Philadelphia indexes each improved this month.

“A rise in April’s data would be one of the first indications of economic growth as we transition into the second quarter of 2010,” said economists from BBVA.

10:00 ― The week should end on a fairly positive note with the Reuters/U of Michigan report Consumer Sentiment sentiment report posting a slight increase in April. Preliminary results earlier in the month saw the index shed a few points from 73.6 to 69.5, but recent retail results suggest a return to 71.0 in the final results.

“The setback in early April was attributed to disappointment with healthcare reform legislation,” said economists from IHS Global Insight. “An improving labor market, generally favorable economic news and more positive readings from the housing market should help to put the sentiment index back on an upward path.”