The Market Today

This Week’s Calendar – Extremely Busy Week for the Economic Data will Build into a Friday Peak:  This week’s economic calendar is as busy as last week’s was boring and the momentum will crescendo each day until Friday’s all-out explosion of data. Today’s calendar is the quietest, with two reports on inventories, an early look at July’s goods trade data, and a regional manufacturing survey from the Dallas Fed. The inventory reports were mixed as wholesale inventories rose 0.4% while retail inventories dropped 0.2%. The goods trade deficit was $0.6B wider than expected and the June result was marginally weaker.

 

On Tuesday, June’s S&P CoreLogic Case-Shiller 20-City home price index is expected to have risen 0.1% MoM in June which would slow the YoY rate from 5.69% to 5.60%. Affordability of available housing continues to grow as a concern and is starting to have a greater impact on sales activity. Larger-than-expected declines in both new and existing home sales were reported last week. Also on Tuesday, the Conference Board’s Consumer Confidence Index is expected to fall from 121.1 to 120.7 in August which would be the third best since 2000.

 

On Wednesday, the first revision to 2Q GDP is expected to add 0.1% to growth and take the total tally to 2.7%. Personal consumption is expected to be revised higher from 2.8% to 3.0%.

 

Thursday’s focus will be on July’s PCE inflation data in which prices are expected to have risen 0.1% MoM at both the headline and core levels. The monthly result would lower the YoY rate from 1.5% to 1.4%. The 1.4% YoY core rate would be the weakest level since 2015. The inflation data will remain the biggest driver of expectations for future Fed tightening. Also on Thursday, pending home sales data is expected to show a 0.1% improvement in July.

 

However, the week’s biggest focus will be on Friday. First, the BLS payroll data is expected to show 180k total jobs were added in August. The unemployment rate is expected to hold at 4.3%, its lowest level since 2001. However, assuming the headline hiring number is close to expectations, the major focus will be on the earnings data. Average hourly earnings are expected to have risen 0.2% in August, enough to push the YoY rate back to 2.6% for the first time since March. Following the labor reports, the August ISM manufacturing index is expected to have improved slightly. Consumer confidence is expected to ease in the University of Michigan’s August survey. Construction spending is expected to have rebounded slightly in July. And auto sales are expected to have remained softer in August.

 

Overnight Activity – Gas Prices Rally as Harvey Devastates Houston:  Trends that developed late last week remain intact Monday with those in energy-related assets strengthening as markets assess the impact of Hurricane Harvey. The post-Jackson Hole jump in the Euro is holding, leaving the currency at its highest level since January 2015. The common currency has risen 12% since the end of March. Since peaking in May, European stocks have yielded 5.7% to the Euro’s strength. European stocks are down 0.3% overnight. Sovereign yields have changed little since Friday with a mix of higher and lower yields across countries and maturities. Hurricane Harvey – now Tropical Storm Harvey – made a devastating landfall over the weekend, dumping inordinate amounts of rainfall on Houston that has led to incredible flooding and left thousands displaced. The destructive flooding has placed a focus on the region’s oil refiners. Gasoline prices are up more than 4% overnight – after rising as much as 6.8% – as companies have begun shutting down refining facilities in the area. Some industry experts expect it could take more than one million barrels per day of oil-to-gas refining offline. U.S. crude is lower by 0.9% in response. The Dollar is weaker and equity futures are marginally positive. The 2-year Treasury yield is up 0.2 bps to 1.33% with the 10-year yield 0.9 bps higher at 2.18%.

 

ICYMI – August 25, 2017 Weekly Market Recap:  The 10-year yield traded within its third tightest weekly range since 1998. The week started with seemingly everyone distracted by the first total solar eclipse to cross the contiguous U.S. since 1979. The weekly high yield of 2.2219% printed early Wednesday morning, a day after the Dow recorded its largest daily gain since April. Stocks rallied Tuesday after a report from Politico indicated there was a growing consensus among the key individuals leading Washington’s tax reform push. Yields retreated just hours later as traders responded to President Trump’s call for a potential government shutdown if a proposed spending bill doesn’t include funding for a border wall. Disappointing reports on new home sales (-9.4% MoM in July) and existing home sales (-1.3% MoM in July) and a solid read on business spending filled the void before Friday’s highly anticipated Jackson Hole event. However, speeches from Fed Chair Yellen and ECB President Draghi failed to live up to the hype. The 10-year yield reached its weekly low of 2.1606% between the two sets of comments. Gasoline prices rallied in the last half of the week as investors became anxious about the potential disruptions that Hurricane Harvey’s landfall in Houston could have on regional refiners. Click here to see the full recap.