The Market Today
A Divide Among FOMC Officials; Durables Report Starts Week on Weak Note
by Craig Dismuke, Dudley Carter
This Week’s Calendar – The Pace Picks Up With Tuesday’s Fedspeak and Friday’s Inflation Report: This week’s economic calendar should be much more exciting than the extremely quiet schedule from last week. This morning’s major report is the May Durable Goods Orders report which provided a disappointing start to the week. Headline orders fell 1.1% versus expectations of a 0.6% decline. However, when excluding transportation items, orders were at least positive, increasing 0.1% MoM versus expectations of a 0.4% increase. In the closely watched capital goods orders and shipments data, business investment once again looks to be weaker-than-expected. Orders of nondefense, ex-air, capital goods fell 0.2% (exp. +0.4%). Shipments of the same items also fell 0.2% (exp. +0.4%). The data points to weaker business investment now and in future months.
The Fedspeakers will be out Tuesday. We’ll hear from Williams, Harker, Yellen, and Kashkari. In addition to Tuesday’s Fedspeak, the Conference Board will release its June consumer confidence index (expected to ease) and the S&P Case-Shiller index is projected to show a stead 5.9% YoY pace of home price appreciation.
Williams will speak again on Wednesday and the Census Bureau will provide a leading indication for May’s trade results – always an important report for projecting GDP growth each quarter. Also on Wednesday, the latest data on accumulation of wholesale and retail inventories will be released and pending home sales are expected to show another positive data point for the housing sector for May.
Thursday’s major report will be the final revision to 1Q GDP but it should be a nonevent considering we’re already at the end of 2Q.
Friday’s calendar could be the most important with the latest data on personal income and spending and May’s PCE inflation data. Core inflation is expected to be weak again with the YoY rate expected to fall to 1.4%. This would be the slowest pace since 2015 and could widen the divide between Fed officials who think the weakness is transitory and want to hike and those who think it’s becoming an issue and want to wait.
Overnight Activity – Firmer Equities, Flattening Curves, and Volatile Oil to Start Final Week of 1H17: The tone has firmed Monday in three major global asset classes as the first half of 2017 gets set to come to a close. Asian equities were lifted by a brief 1.5% rebound in crude prices. The commodity has since reversed and is now up just 0.2%. However, that hasn’t deflated activity in Europe where the Stoxx 600 is up 0.8% on broad-based sector strength. Consumer staples and financials are leading following news that an activist investor bit off a notable share of Nestle and Italian officials announced the closure of two regional banks. While business confidence in the U.S. has softened in recent months, German business confidence has improved in six consecutive months and reached an all-time record high in June. Despite firmer equities, sovereign curves in Europe continued to flatten on lower longer yields. Treasury yields have given up an overnight rise of nearly 2 bps and are now little changed from Friday’s finish (2s 1.35%, 5s 1.76%, 10s 2.14%). U.S. equity futures are higher by 0.3% to 0.4%.
ICYMI – Yields Went Nowhere Last Week: The 10-year Treasury yield traded last week within its tightest weekly range since August 1998. In a week void of economic reports, volatility was notably absent despite comments from several key Fed officials, oil falling into an official bear market, and the Senate releasing its plan for U.S. health care reform. Click here for the full recap.