The Day Ahead: Global Rally Continues Ahead of Fresh Data

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Global equity markets continue to rally Tuesday as investors bet on Europe finding a solution for its various debt problems.

The Treasury market is backing up with the 10-year yield up six basis points at 1.97%, the 30-year Treasury yield up nine basis points at 3.08%. 

S&P 500 futures are 16.3 points higher at 1,174.70, reflecting a 1.41% gain. Dow futures are 140 points up at 11,112, a 1.28% jump.

Light crude oil moved 2.69% higher overnight to $82.38 per barrel, and gold prices ascended 4.88% to $1,672.60.

In Asia, the Nikkei finished 2.8% higher, the Hang Seng climbed 4.2%, and China's CSI 300 rose 1.0%. Europe's ongoing session is seeing similar moves: the FTSE 100 is up 2.75%, the CAC-40 is is up nearly 4%, and the Euro Stoxx 50 is up 3.76%.

Key Events Today:

9:00 - The S&P Case-Shiller Home Price Index reported that prices were down 4.5% year-over-year in June. Economists now see signs of stabilization as a decline in mortgage rates spurs activity. One pillar of support for this argument is the FHFA monthly index - it has inched up each of the last four months.

"Taking into account variations in other home price indices over the May-July period, which have already been reported by private research firms such as Zillow.com and Core Logic, the year-over-year change rate of the index likely improved in July from -4.5% in June," said Nomura Global Economics, who forecast the y-o-y rate at -4.2%.

BMO implied the supposed stabilization is overstated.

The 20-city home price index "is expected to increase 0.1% m/m, which will leave it 4.4% below year-ago levels - a tiny "improvement" from July's -4.5% y/y pace," they said. "Since this home price metric peaked in April 2006, the cumulative decline has been 32%, with no signs of stopping. The overhang of unsold homes remains historically high, owing to steady addition via the foreclosures channel."

10:00 - The Conference Board's Consumer Confidence index fell nearly 25% in August as it dropped 14.7 points to 44.5, its lowest since April 2009. Not much has improved since then, so the debate is whether the index will deteriorate further or simply sit at this low level.

"Incoming data have weakened recently and equity markets have fallen sharply, suggesting extremely soft consumer confidence," Citigroup said. "However, the confidence index already plummeted in August, as the political process dominated headlines and expectations. That move went further than the fundamental data suggested at that time."

IHS Global Insight notes that last week's plunge in equities following the Fed's policy statement probably came after the survey period ended, so didn't do extra damage to the September confidence reading. One could even argue for upside risk given the five straight days of equity gains seen in the week before. 

12:30 - Dennis Lockhart, president of the Atlanta Fed, speaks on the U.S. economy to the World Affairs Council in Jacksonville. 

1:20 - Richard Fisher, the hawkish president of the Dallas Fed who dissented from the last few FOMC meetings, give a talk called "Explaining Dissent: Why I Voted Against Operation Twist."

 

  • Treasury Auctions:
  • 11:30 - 4-Week Bills
  • 1:00 - 2-Year Notes