"Three key themes in week ahead data: housing, capex, and jobs," said Deutsche Bank's Joe LaVorgna.
Indeed, the housing market is showing cracks as mortgage rates rise, GDP growth is beginning to lag, and job creation has picked up.
We have new and existing home sales stats, durable goods orders, and jobless claims coming up this week.
Top Stories
It Used To Be Called A Job-less Recovery: Since the financial crisis, GDP roared back, but jobs lagged. But in more recent months, job creation has accelerated as GDP growth expectations got scaled back. "The employment data already look strong enough to be consistent with at least a 3% pace for real GDP growth," said High Frequency Economics' Jim O'Sullivan. "Some of the divergence between employment and GDP has likely reflected catch-up after employment was unusually weak relative to GDP during the recession and early in the recovery. Some of it has likely reflected genuine weakening in productivity growth due to the plunge in business investment during the recession. Some of it has been due to lingering weakness in housing services consumption after household formation weakened sharply. However, some of it may also be due to undercounting of GDP."
The Detroit Bankruptcy Is An Isolated Event: On Thursday, Detroit finally capitulated after decades of economic decline. "The news that Detroit has applied for Chapter 9 bankruptcy could have big ramifications for the citizens of Detroit, particularly retired workers, and anyone invested in the City’s debt," said Capital Economics' Paul Dales. "The upshot is that we don’t expect the bankruptcy of Detroit to send many shockwaves though the financial markets or the wider economy. Nor do we expect it to prompt municipal bond spreads to break out of their recent range."
Economic Calendar
Existing Home Sales (Monday): Economists estimate that the pace of existing home sales increased 1.4% month-over-month to an annualized pace of 5.25 million. "We look for existing home sales to gain another 2% in June on top of the 4% May rise to another six-year high outside of the peak of the initial implementation of the homebuyers’ tax credit in 2009," said Morgan Stanley's Ted Wieseman. "The initial reaction of prospective homebuyers to the surge in mortgage rates that started in early May appears to have been to buy before rates went even higher judging by a sharp gain in the pending home sales index."
FHFA House Price Index (Tuesday): Economists estimate house prices climbed by 0.8% in May. "We forecast another healthy gain in the seasonally adjusted FHFA purchase-only index in May, extending its streak of solid monthly increases," said UBS's Kevin Cummins. "The index has risen in 15 consecutive months."
Richmond Fed Manufacturing Index (Tuesday): Economists estimate the headline index climbed to 10 in July from 8 in June. "The New York and Philadelphia Fed surveys have already been released for July," said Cummins. "Both suggested improvement in the growth of manufacturing output."
Markit Flash PMI (Wednesday): Economists estimate a headline reading of 52.5. Any number above 50 signals expansion.
New Home Sales (Wednesday): Economists estimate that the pace of new home sales climbed 1.8% month-over-month to an annualized pace of 485,000. "Rising home prices have contributed to a growing backlog of new homes that have caused builders to limit the release of new homes to the market," said Wells Fargo's John Silvia. "While we look for new home sales to continue to increase in the coming months, rising construction costs could also slow the pace of sales down the road."
Initial Jobless Claims (Thursday): Economists estimate that initial claims climbed to 340,000 from 334,000 last week. "Smoothing through the weekly volatility, claims have been moving sideways for about three months," said Cummins. "Recent swings have likely reflected the timing of summer auto shutdowns." Here's Deutsche Bank's Joe LaVorgna: "While this week’s initial jobless claims figures fall one week after the July employment survey period, given heightened volatility over the past few weeks, they will nonetheless provide an important signal regarding underlying momentum in the labor market."
Durable Goods Orders (Thursday): Economists estimate that durable goods orders climbed 1.1% in June, durable goods excluding transportation grew by 0.5%, and nondefense capital goods excluding aircraft increased by 0.7%. "Higher non-defense aircraft orders explain the difference between our headline and ex- trans projections; Boeing orders were even more elevated in June (287) compared to May (232)," said Credit Suisse's Neal Soss. "Indications of steadily expanding ex-trans durable orders in the June ISM Manufacturing survey are behind our calls for underlying ex-trans orders and core capex orders."
University of Michigan Consumer Confidence (Friday): Economists estimate confidence climbed to 84.0 in July."After reaching a recovery-to- date high of 84.5 in May, the index fell marginally, to 84.1 in June and 83.9 in early July," noted High Frequency Economics' Jim O'Sullivan. "The index probably started rising again in late July, helped by the bounceback in equities and ongoing improvement in the labor market."
Market Commentary
For weeks, months, and even years, investors have wondered if the stock market was ready to turn. The answer to that question has repeatedly proven to be a resounding "No."
“For the past two and a half months I have targeted tomorrow, July 19th, as the intermediate-top on both my quantitative timing and technical models," said Saut.
"I have been raising cash for the past few weeks and I think this correction in the stock market will be roughly 10% to 12%. It’s just a question of, is this thing going to end with a whimper, or is it going to end with a bang?"
Jonathan Corpina, a senior managing partner at Meridian Equity Partners, Inc., gave us a preview of this week's events from the New York Stock Exchange trader's perspective. Watch our brief interview here:
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