The Day Ahead: New Home Sales, FOMC Statement, Treasury Auction
Investors are optimistic this morning ahead of the central bank’s afternoon policy announcement. Sentiment could easily change early into the session, however, as the new home sales index is anticipated to fall after the expiration of the homebuyer tax credit..
Two hours before the opening bell, Dow futures are up 46 points to 10,279 and S&P 500 futures are up 5.25 points to 1,095.75.
WTI crude oil is down $0.30 to $77.55 per barrel, while Spot Gold is up $4.45 to $1,244.50 per ounce.
The US dollar index is lower by 13 basis points to 85.98.
Economists from BMO offered this assessment about why the euro remains flat:
“The advanced readings for the manufacturing and services PMIs both fell in June, with the prior above expectations and the latter below expectations. Overall, the pullback isn’t terribly surprising considering the financial market uncertainty clouding over the European economic outlook. Exporters are no doubt getting support from a weaker euro, but that won’t be enough to fully offset weakness elsewhere. Despite the declines in the PMIs, they remain nicely above 50 and still point to decent growth for the region. Meantime, German consumer confidence held up in July, steady at 3.5. No signs of a sharp slowdown yet, even with all the talk of a double-dip.”
Key Events Today:
10:00 ― Economists are anticipating a major decline in the New Home Sales Index. The consensus looks for sales to fall by more than 20% from an annual pace of 504k to 400k, and some predictions are as low as 370k. The anticipated drop in May follows a 14.8% jump in April, which received a boost as homebuyers raced to close their contracts before the expiration of the tax credit.
“New home sales jumped 49% during March and April combined,” said economists at IHS Global Insight. “With the homebuyers' tax credit expiring April 30, sales will likely post their largest monthly percentage drop on record (data start in 1963). We project that sales will plummet 26% to 375,000 (annual rate).”
2:15 ― Few changes are expected in the FOMC’s latest meeting announcement. The Federal Reserve has indicated that policy won’t be tightened at any time soon, so it’s a virtual certainty that the overnight lending rate will remain in the zero to 0.25% range. Though most economists believe the recession ended months ago, lowering the unemployment rate remains much more important that worrying about inflation.
“Recent Fed speeches have indicated that economic conditions are improving in line with Fed expectations, but growth will only be moderate and inflationary pressures will remain at bay,” said economists at BBVA. “A surprise in the statement would be the removal of the ‘extended period of time’ language, which would indicate that rates will rise sooner than expected.”
“While the economic recovery is still moving ahead, the employment market picture remains extremely troublesome in terms not only of the persistently high unemployment rate, but also in sharp increases in the duration of unemployment,” added economists at IHS Global Insight.
“Core CPI inflation remains below 1%, and well below the Fed's target of 1.5% to 2.0% ― with potentially more downward pressure in the next few months. Beyond these domestic risks, the crisis in the Eurozone and much lower level for the euro threatens further disinflationary shocks to the U.S. economy.”
In the last meeting, only Kansas City Fed president Thomas Hoenig dissented from the majority vote. Recent comments suggest he made repeat that vote, though Eurozone troubles could push him into the majority vote.
Treasury Auctions:
- 1:00 ― $38 billion 5-Year Notes