The Day Ahead: Markets Brace for Home Prices, Consumer Confidence

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Treasuries are rebounding from Monday's losses and the equity rally looks a bit overdone, at least until investors have a chance to look at this morning's home price and consumer confidence data.

The two-year Treasury yield is flat at 0.20%, the 10-year yield is five basis points firmer at 2.21%, and the 30-year yield is five basis points firmer at 3.55%.

Equity futures are taking away from Monday's strong gains. The S&P looks to open down 6.2 points at 1,201.90 and Dow futures are off 45 points at 11,472. On Monday the S&P jumped 2.83%, crossing the 1,200 barrier for the first time in two weeks.

Light crude oil is 0.29% lower at $87.01 per barrel, while gold prices are 0.17% higher at $1,793.50.

Key Events Today:

9:00 - The S&P Case-Shiller Home Price Index is expected to pause in June, indicating some stability after prices dropped 4.5% over the prior 12 months. The evidence stems from multiple sources, including the FHFA Purchase index climbing for the past three months (to June), as well as private research from Zillow and Core Logic.

With the glut of supply on the market, and not much demand, housing prices should be continuing to fall, Janney Capital Markets said. The fact that they aren't may mean that historically low mortgage rates are supporting the current level of home prices despite slower sales.

"Lower mortgage rates have effectively absorbed what would otherwise be falling sales prices," Janney wrote. "Case in point: the 35 basis point decline in thirty year agency mortgage rates from the first quarter average to June is equivalent to a 4% drop in home prices. This financing effect has slowed the pace of home price depreciation, although we're still on track to see a 7.5 - 10% drop in real estate prices for full year 2011."

10:00 - Consumer Confidence took a beating in last week's measure from the University of Michigan. This index, from the Conference Board, is likely to corroborate that. Political inaction in Washington, high unemployment, and gyrating financial markets are just a few of the reasons driving sentiment lower. The median estimate expects the survey to drop to 52 from 59.5. Some estimates are as low 45. 

"Political rhetoric coupled with the downgrade of the US credit rating and finally the bout of recent volatility appears to have wreaked havoc on consumers' perceptions, at least judging by the interim U Michigan and Bloomberg consumer surveys-not to mention common sense," said Janney Capital Markets. "Given that the genesis of the consumer confidence problems is purely quantitative and non-economic, estimating just how deeply recent events impaired confidence is a tricky exercise."

A modicum of hope stems from predictions from August was a low point and that confidence could move upwards in September.

12:15 - Narayana Kocherlakota, president of the Minneapolis Fed and one of three dissenting voices at the August 9 FOMC meeting, speaks on the economic outlook and leverage to the National Association of State Treasurers in Bismarck, North Dakota.

2:00 - The FOMC Minutes of the August 9 meeting may have been preempted somewhat by Fed chairman Ben Bernanke speaking in Jackson Hole, Wyoming, last week. But there's still plenty of details to glean. In particular, markets want details from the three voting members who dissented from the Fed's vow to keep overnight lending rates extremely low until mid-2013.

The minutes "should provide a sneak peak into Chairman Bernanke's QE toolbox, providing some sense of which tool - the big QE3 balance-sheet expansion hammer or the smaller maturity-shifting balance-sheet tweaking icepick - he is likely to use should the recovery wheels come off the rails," said economists at BMO Capital Markets. "The minutes may also show whether other members sympathized with the three dissenters who opposed specifying an extended timeframe for low rates. If there was broader opposition to more stimulus, the Chairman might need a stronger set of springs in his toolbox to hurdle the QE3 bar."

  • Treasury Auctions:
  • 11:30 - 4-Week Bills