A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of. Via GS:
Monday, August 26
- 08:30AM Durable goods orders, July (consensus -4.0%, last +3.9%)
Durable goods orders ex-transport, July (consensus +0.5%, last -0.1%)
Core capital goods orders ex-aircraft, July (consensus +0.5%, last +0.9%)
Core capital goods shipments, July (consensus +0.3%, last -0.9%)
- A drop-off in Boeing aircraft orders during July makes a weak headline reading on durable goods orders very likely. Durable goods ex-transport and core capital goods orders are expected to post modest gains. Core capital goods shipments should begin rising in coming months, having tracked below orders for some time. More broadly, leading indicators of cap-ex suggest a near-term pickup from the sluggish trend in recent quarters.
- 10:30AM Dallas Fed manufacturing index, August (consensus +3.9, last +4.4)
Tuesday, August 27
- 06:50AM San Francisco Fed President Williams (FOMC non-voter) speaks
- Last week President Williams stated that he expects tapering to occur later this year, but did not comment on whether the September meeting was the most likely choice. He also said that MBS purchases were "obviously helping" the economy, consistent with his past remarks on MBS purchases potentially being more effective than Treasury purchases.
- 09:00AM S&P/Case-Shiller home price index, June (consensus +1.0%, last +1.05%)
- Home prices according to the FHFA index (released last week) rose 0.6% in June. The consensus expects a solid gain on S&P/Case-Shiller home prices?measuring prices on a broader range of properties but with a more limited geographic coverage than the FHFA index?a continuation of the past year's 12.1% advancement. Prices have generally risen most rapidly in cities hardest hit by the housing bust, including San Francisco, Las Vegas, and Phoenix.
- 10:00AM Conference Board consumer confidence, August (consensus 79.0, last 80.3)
- Confidence indicators have generally worsened in August relative to July, including the preliminary read of U Michigan consumer sentiment and the daily Rasmussen confidence index. The stock market, which tends to be correlated with month-to-month changes in confidence, declined month-to-date in August. On the positive side, retail gasoline prices?another generally important factor for consumer sentiment?have ticked down in recent weeks, but only modestly so.
- 10:00AM Richmond Fed manufacturing index, August (consensus 0, last -11)
- Last month the Richmond Fed index posted a large 18pt decline to -11. The consensus expects a partial reversal of this drop in August to a roughly flat read. The Richmond Fed district is likely to be disproportionately impacted by the defense-related provisions in the sequester.
Wednesday, August 28
- 07:00AM MBA mortgage applications, week of August 23 (last -4.6%)
- MBA mortgage applications have declined substantially since the trough in mortgage rates in early May. The decline has been led by refinancing applications (-62%), but new purchase applications have also fallen (-16%), a potential negative indicator for future home sales.
- 10:00AM Pending home sales, July (consensus Flat, last -0.4%)
- Pending home sales?measured based on contract signings rather than closings, unlike the existing home sales release?were likely roughly flat in July, according to the consensus. An unexpectedly large drop in pending home sales, taken together with this week's disappointing new home sales data, could suggest that the rise in mortgage rates is having a more substantial negative impact on the housing market.
Thursday, August 29
- 08:30AM GDP, Q2 revision (consensus +2.2%, advance estimate +1.7%)
- Consensus expects a half a percent upward revision to Q2 GDP growth. The trade deficit in June was much smaller than the BEA anticipated at the time of the Q2 advance estimate, although inventory accumulation looks to be somewhat slower than originally estimated.
- 08:30AM Initial jobless claims, week ended August 24 (consensus 330k, last 336k)
- Continuing jobless claims, week ended August 17 (consensus 2,990k, last 2,999k)
The 4-week moving average of initial jobless claims continues to move down, reaching a new post-recession low of 331k last week. We are now past the season of normal heightened volatility around the summer auto plant shutdowns, and claims have been less volatile in recent weeks allowing for a better read on the underlying trend. In contrast to the signal from initial claims, the downward trend in continuing claims has slowed in recent months.
- Continuing jobless claims, week ended August 17 (consensus 2,990k, last 2,999k)
- 02:00PM Richmond Fed President Lacker (FOMC non-voter) speaks
- President Lacker?known for hawkish monetary policy views?recently stated that "my view of the literature is that the benefits of further asset purchases are likely to be negligible."
Friday, August 30
- 08:30AM Personal income, July (consensus +0.2%, last +0.3%)
Personal spending, July (consensus +0.3%, last +0.5%)
PCE price index, July (consensus +0.2%, last +0.4%)
Core PCE price index, July (consensus +0.2%, last +0.2%)
- Wage & salary income likely grew at only a sluggish rate following disappointing growth in aggregate weekly payrolls?the product of the number of people employed, hours per employee, and earnings per hour?found in the July employment situation report. Real income was likely flat on the month. Personal spending probably rose, but by slightly less than the 0.5% increase in core retail sale in July, in part due to a decline in auto sales. Energy prices were likely a relatively neutral contributor to the headline index in July.
- 09:00AM St. Louis Fed President Bullard (FOMC voter) speaks
- Last week President Bullard noted that he would not support raising interest rates with inflation below 1.5%, consistent with discussion of a potential inflation floor in the July FOMC minutes. Core inflation is expected to rise above 1.5% well before rate hikes become likely. He also noted that the FOMC need be "in any hurry" to taper QE.
- 09:45AM Chicago PMI, August (consensus 53.0, last 52.3)
In contrast to the weaker-than-expected August Philadelphia Fed and Empire manufacturing surveys, the Chicago PMI is expected to gain in August, moving towards the ISM manufacturing index's 55.4 July print. In terms of regional drivers, August auto production likely bounced back somewhat from its weakness in July, a potential positive for Great Lakes region manufacturing activity.
- 10:00AM U Michigan consumer sentiment, August final (consensus 80.5, last 80.0)
We expect U Michigan consumer sentiment to retrace only a bit of its substantial 5.1pt drop revealed by the August preliminary estimate. More generally, consumer sentiment appears to have worsened somewhat in August relative to July
Key events visually via SocGen:
Key events and market issues for the coming week:
US DURABLE GOODS TO SEE FIRST DECLINE SINCE MARCH
The August employment report due on 6 September is the key release ahead of the September 17-18 FOMC. This week we look for -2.8% mom on July durable goods orders due to a forecast decline in transport requisitions. Setting this factor aside, however, the underlying number is a still encouraging +1.3%. Q2 GDP is, moreover, expected to see an upward revision to 2.5% qoq ann. And while we expect consumer confidence to see a pullback, a jump up in the Chicago PMI should off further support to the recovery bulls.
MARKET ISSUES: We expect the Fed to announce QE taper at the September FOMC. Although markets have already re-priced the Fed’s reaction function, our rate strategists expect the 10-year yield to break above 3% on QE taper.
GOOD MOOD IN EURO AREA, BUT NO CREDIT
Following in the footsteps of last week’s PMI reports, we expect that batch of confidence data out this week (IFO, European Commission, INSEE, …) to overall support expectations of euro area recovery. Monetary aggregates, however, will be a reminder of the still broken credit channels in the euro area periphery as we expect to see yet a month of credit contraction in the region.
MARKET ISSUES: As we highlighted last week, sustainable recovery needs sustainable politics. The issues of debt sustainability, austerity, structural reform and banking union are likely to remain fairly quiet ahead of the German election on 22 September. At this point, we see little evidence that the political decisions needed for a sustainable recovery are in the pipeline. This means that the most likely outcome for the euro area now is a prolonged period of stall speed growth interrupted by a series of minicrisis as new patchwork solutions area sought for Greece, Portugal, etc.
IMPROVED CONFIDENCE, BUT NO CHINA BOOM
August PMI is expected to clock in at 50.6 up from 50.3 previously. This will off further evidence of a growth rebound in Q3. We remain somewhat sceptical on the sustainability of this momentum given the on-going deleveraging of the shadow banking system and the headwind blowing over emerging markets from rising US bond yields and dollar appreciation.
MARKET ISSUES: Should China show signs of significant slowdown, fears could be triggered of EM hard landing.
CENTRAL BANK OF BRAZIL TO HIKE 50BP
The BRL has depreciated 20% over the past month against the USD – a move that by the BCB’s own estimate would add 1pp to ICPA inflation. LatAm Economist, Dev Anish, suspects that the number could actually be double that at 2pp. No doubt the BCB is hoping that the $60bn FX intervention programme announced Thursday will prove effective and limit the need for future rate hikes. Nonetheless, we expect the central bank to follow up this week with a 50bp hike of the Selic rate to 9.00%.
MARKET ISSUES: History of FX intervention is mixed to say the least and the week ahead will bring a key test for the BRL. Near-term, however, measures should prove supportive. Increased uncertainty is nonetheless and additional headwind for the economy.