The Day Ahead: Durable Goods, New Home Sales, Treasury Auction

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With the OECD upgrading its global outlook for 2010 and 2011 growth, investor confidence is back on track this morning. Equities are trading much higher globally, including gains of larger than 2% in England and France, the euro is slightly higher, and stock futures in the U.S. look to a clear open. 

“Yesterday’s late afternoon near-miraculous recovery in North American equity markets has also bolstered investor spirits overnight,” said economists at BMO Capital Markets. “European bourses are trading 2% higher (after dropping to 9-month lows yesterday), while most Asian markets also finished their session in the green.”

Ninety minutes before the opening bell, Dow futures are up 84 points to 10,109 and S&P 500 futures are 11.50 points higher at 1,084.50

The 2 year Treasury note is -0-02 at 99-27 yielding 0.841% and the 10 year Treasury note is -0-25 at 102-04 yielding 3.249%.

The NYMEX crude oil futures contract is up 2.03 to 70.78, and Gold futures are up $15.60 to $1,213.60.

Meanwhile, Robert Mundell, a Nobel laureate, said it is “inevitable” for one or two euro zone nations to restructure their debt, but that wouldn’t imply the destruction of the euro currency. 

“Debt restructuring may be needed for one or two fiscally weak euro members,” he said in Warsaw, according to Bloomberg News. “In five years it may be inevitable, but it doesn’t mean euro deconstruction, it just means debt restructuring.”

He encouraged the creation of a Treasury-like euro-bill, which he believes will help the currency gain a reserve-currency status.

Key Events Today:

8:30 ― Durable Goods are set to rise 1.5% in April, more than offsetting the 1.2% decline in March and adding growth to the 0.5% gain in February. Orders for capital goods ― non-defense capital goods excluding aircraft ― are expected to rise for the third straight month, building on an 11.6% gain in the first quarter. If regional indexes are accurate, growth is broad-based; but given the recent turmoil and uncertainty in Europe, some economists are reluctant to assume that international will hold steady.

“Although business confidence may take a step back with the onset of turmoil in financial markets, as of April, the capital spending recovery looked to be gathering momentum,” said economists at Nomura. “Industrial production of business equipment, for example, increased by 1% during the month, and results of most business surveys were quite positive. Due to the volatile nature of the durable goods report, we see some downside risk to our forecast.”

10:00 ― New Home Sales unexpectedly climbed nearly 27% in March, but in the broader context the index has seen little improvement over the past nine months. April, unfortunately, looks unlikely to repeat the surge in March. Economists look for the annualized pace of sales to be 425k, marginally up from 421k in March. And even if the report is more positive than expected, the opposite can be expected once the government tax incentive for first-time homebuyers expires.

“Unlike the existing home sales release, the new home sales report tracks signed, not closed home sales contracts,” said economists at Nomura. “New home sales should therefore peak in April in anticipation of the signing deadline for the homebuyer tax credit. We expect new home sales to fall in May, however, and the weakness in mortgage applications suggest the decline could be steep.”

4:15 ― Jeffrey Lacker, president of the Richmond Fed, speaks on financial regulation at a conference at the Institute for International Economic Policy in Washington.

 

  • Treasury Auctions:
  • 5-Year Notes