The Day Ahead: Case-Shiller Home Prices, Consumer Confidence, Treasury Supply
The S&P broke key resistance yesterday, this morning those advances are being extended and interest rates are trending higher.
One hour before the opening bell, Dow futures are up 57 points to 10,514 and S&P 500 futures are up 6.75 points to 1,116.00. The S&P broke through it's 200 day moving average yesterday, today that level will be retested as traders look for confirmation that this was the right move.
Ahead of the $38 billion 2-year Treasurry note auction, the shape of the yield curve is unchanged but yield levels have moved up across the curve. The 2-year note is -0-03 at 99-31 yielding 0.641% (+4.5bps). The 3.50% coupon bearing 10 year Treasury note is -0-12 at 103-28, 4.3bps higher in yield at 3.041%.
Rate sheet influential MBS price levels are lower and yield spreads are tigther. The September FNCL 4.0 is -0-08 at 101-07. The September FNCL 4.5 is -0-04 at 103-18. The secondary market current coupon is 2.9bps higher at 3.776%.
Key Events Today:
9:00 ― The S&P Case-Shiller Home Price Index is the most closely watched indicator of national home prices. This index for May will garner extra attention given the government’s tax incentives expired in April. In the prior index, prices rose 0.4% in the month among the top 20 major metropolitan areas, or 3.8% compared to one year ago. That bounce followed two months of declined and was attributed to the tax-credit. Without such stimulus, prices are likely to deflate in May.
Expectations are mixed. Economists at Nomura Global Economics forecast that prices will be up 4.1% year-over-year, which would reflect the highest rate of growth since 2006.
“However,” they noted, “the report may signal weakness in the latest monthly trends. The Loan Performance house price index ― actually our preferred measure of house prices ― decelerated slightly in May from April, bucking normal seasonal trends. We believe the after effect of the federal homebuyer tax credit may have played a role in softening price growth.”
10:00 ― After declining nearly 10 points to 52.9 in June, Consumer Confidence is expected to fall roughly two points to 52.0 in July. Expectations are mixed but several important signs aren’t looking good: The S&P 500, a benchmark of stock prices, had shed nearly 10% over the past three months and has been volatile in recent weeks; labor markets are far from suggesting robust growth; and the housing market has been getting worse.
Economists at BTMU predict a hefty 6.6-point drop and list a series of reasons to support it. They note the University of Michigan’s measure fell 9.5 points to its lowest since August, while the IBD/TIPP index shed 1.5 points to its lowest since December 2007.
“Financial market volatility is once again stripping away wealth and investors are running for the hills (i.e. government treasuries) where preserving cash has become key,” they added. “We’ve already seen the damage show up in weak consumer spending late in the second quarter and spending is not expected to be robust in the second half of the year.”
In total contrast, economists at IHS Global Insight look for a slight bounce this month.
“The sharp drop in the previous month was probably an overreaction to weakness in the stock market and the constant litany of bad news on the BP oil spill,” they argued. “That being said, consumer confidence has been dramatically shaken in the past couple of months and it may take some time to recover to more reasonable levels.”
Treasury Auctions:
- 11:30 ― 4-Week Bills
- 11:30 ― 52-Week Bills
- 1:00 ― 2-Year Notes