The Market Today
Busy Week of Data Capped off by Friday’s Jobs Reports
by Craig Dismuke, Dudley Carter
Today’s Calendar – Pending Home Sales Kick off Busy Week: After a week full of important economic reports, this week’s calendar is equally eventful. Kicking off this morning, the 9:00 a.m. CT Pending Home Sales report is expected to rise 1.0% after some weak data in recent reports. The Chicago Purchasing Manager’s index is expected to pull back from 65.7 to 60.0 and the Dallas Fed Manufacturing index is expected to drop from +15.0 to +13.0.
Later This Week … Manufacturing, Auto Sales, Income and Spending, Inflation, Construction, and Jobs: However, the bigger news begins tomorrow with some pencil sharpening on the June Personal Income and Spending data and PCE inflation. Last Friday’s GDP report provided an advanced look at the data and the spending data appears to have been modest while the inflation data looks to be weaker yet. We’ll also see the ISM Manufacturing Index, June Construction Spending report, and July’s vehicle sales totals. Wednesday will bring the ADP Employment report, the first estimate of Friday’s BLS nonfarm payroll report. The ADP report has proven particularly inaccurate lately, missing the BLS figure by an average of 82k per month over the last four months, the worst streak for ADP in over five years. Thursday will bring the ever-important ISM Non-Manufacturing index and then the July labor reports will be released on Friday. They are projected to show 178k nonfarm payrolls added with the unemployment rate dropping to 4.3%. Average Hourly Earnings will be critical to watch after a recent run of weaker-than-expected data. Fed Bank Governor Mester and San Francisco Fed President Williams are both scheduled to speak on Wednesday.
Overnight Trading – Eurozone Unemployment Beats, Inflation Stronger than Expected: The Eurozone unemployment rate fell from 9.3% (revised to 9.2%) to 9.1% in June, bettering expectations by 0.1%. The region’s CPI inflation report showed core inflation tick up from 1.1% to 1.2% YoY. However, the market impact from these reports has been minimal. Eurozone sovereign yields are largely unchanged with French and German 10-year yields up 1-2 bps and Italian, Spanish, and Portuguese yields down 1-2 bps. Eurozone stocks are up 0.2% overnight after the Hang Seng ran up 1.3% but the Japanese Hang Seng fell 0.2%. Oil and gold are both down fractionally. All told, there are few overseas factors driving U.S. markets coming into the open. The 10-year Treasury yield is trading at 2.29%, the same as Friday’s closing level.
Healthcare and Tax Reform: Despite last week’s setback, the White House wants Congress to vote on repealing Obamacare before voting on any other items, according to comments from White House Budget Director Mick Mulvaney over the weekend. As it relates to tax reform, Speaker Paul Ryan said Friday, according to Politico, “Republicans’ plan on tax reform is to create as many permanent changes as possible, while making others temporary to comply with budgetary rules. … Ryan said the top priority is to lower, as quickly as possible, overall business and individual tax rates, as well as some sort of enhanced write-offs (‘expensing’) for businesses, with the aim of reaping the economic benefits headed into the 2018 midterm elections.”
2017 Profit Boom: According to the WSJ, “America’s largest companies are on pace to post two consecutive quarters of double-digit profit growth for the first time since 2011, helped by years of cost-cutting, a weaker dollar and stronger consumer spending. … Earnings at S&P 500 companies are expected to rise 11 percent in the second quarter, according to data from Thomson Reuters, following a 15 percent increase in the first quarter. Close to 60 percent of the firms in the index have reported second-quarter results so far.”