The Day Ahead: Global Equity Sell-Off Ahead of Housing Data
Equity futures are tracking global stocks sharply lower this morning as investors await key housing price data and results from a consumer confidence survey.
The sell-off was prompted by a leading economics indicator for China. The Conference Board, which compiles and releases the report, cited a calculation error and corrected April’s advance by trimming it from +1.7% to +0.3%. China’s benchmark stock index rapidly fell by 4.6% thereafter, with global equities following suit.
“World financial markets are a sea of red on weaker-than-expected economic data out of China and Japan, and as Greek unions call for a fifth nationwide strike this year,” said economists at BMO Capital Markets. “All the world loves Treasuries, with the 10-year note crashing through 3% for the first time in 14 months, and the 2-year issue briefly touching a record low of 0.59%.”
Ninety minutes before the opening bell, Dow futures down are off 104 points to 9,984 and S&P 500 futures are down 12.50 points to 1,058.50.
The 2-year Treasury note yield is 0.4bps lower at 0.625% and the benchmark 10-year Treasury note is 2.9 basis points lower at 2.994%.
The August delivery Fannie Mae 4.0 MBS coupon is +0-04 at 101-02. The August delivery Fannie Mae 4.5 MBS coupon is +0-02 at 103-14.
Key Events Today:
9:00 ― The S&P Case-Shiller Home Price Index will be closely watched this month. The index has seen prices slip for the past two months despite the government tax credit for new homebuyers. Prices remain 30.6% off from the peak of the housing bubble, but compared to one year ago, prices were up 2.3% (for the 20 major metropolitan areas).
Reuters consensus estimates call for the unadjusted 20 city home price index to have risen 0.2 percent in April (-0.1 percent on adjusted basis). Economists at Nomura said to look for prices to firm by 3.0% on a year over year basis.
The April report “will offer a decidedly more upbeat tone about the state of the housing market than recent activity reports,” they wrote. “Available measures of house prices for April, such as the daily RPX index, suggest that prices have continued to firm.”
10:00 ― Somehow, Consumer Confidence has been rising recently despite the onslaught of the Euro crisis, increased volatility in the stock markets, and a lack of significant job creation. In May the Conference Board’s report jumped to 63.3 from 57.7, marking a 25-month high as the jobs component hit a peak not seen since since December 2003. Economists are split on the direction of the index this month ― the consensus remains 62.8, with the range of predictions between 61 and 65.
“Consumer confidence is expected to decline slightly in June, but it will remain well above the twelve-month average,” predicted economists at BBVA. “Even though the labor market is recovering slowly, those with jobs are feeling more secure and more opportunities are opening up for the unemployed. Nevertheless, confidence remains well below the historical average of 95, which indicates that consumer spending will open up gradually.”
Treasury Auctions:
- 11:30 ― 4-Week Bills
- 11:30 ― 52-Week Bills