The events calendar in the week ahead focuses on the health of housing, the Federal Reserve's semi-annual report to Congress, a deluge of earnings, and the release of EU bank stress tests.

Key Events This Week:

Monday:

10:00 ― The National Association of Home Builder's Housing Market Index, a measure of homebuilder sentiment, jumped three points to its highest level in almost three years at 22 in May, but then fell five points to 17 in June, returning to its February level. Economists attributed the rise and decline to the expiration of the homebuyer tax credit. For July, economists polled by Reuters expect further deterioration to 16. In any event, the index is far from the 50 threshold which indicates optimism among builders.

“We forecast that the NAHB index will hold at 17, but see some risk of another decline, said economists at Nomura Global Economics. “The tumble in home sales after the expiration of the federal homebuyer tax credit suggests underlying home purchase demand remains quite soft. We therefore expect homebuilder sentiment to remain depressed for the time being.”

Ian Shepherdson at High Frequency Economics said the big post-tax credit drop is surely over, and predicted a slight slip this month. “You would have had to have been asleep not to have noticed the plunge in mortgage applications immediately after credit expired on April 30.”

Treasury Auctions:

• 11:30 ― 3-Month Bills
• 11:30 ― 6-Month Bills

Tuesday:

8:00 ― Goldman Sachs reports second-quarter earnings.

8:30 ― Housing Starts fell 10% in May and the headline is only expected to keep falling in June as demand remains weak. The consensus expects a drop from 593k annualized sales to 580k, and expectations range widely from 525k to 620k. The focus will be single-family housing starts, which led the nosedive last month when it fell more than 17%, one of the sharpest falls in the history of the index. Another focus will be building permits, which anticipate housing starts by a month of two.

“Builders have seen a sharp decline in demand following the expiration of the home buyers’ tax credit and are uncertain about the future,” noted economists at BBVA. “As a result, ground breaking on new homes will drop in June. A greater than expected decline would indicate serious weakness in the residential construction sector, which would lead to further job losses and worries about the pace of recovery.

Treasury Auctions:

• 11:30 ― 4-Week Bills

Wednesday:

7:00 ― The MBA Mortgage Applications Index will release the latest weekly data. It most recently fell 2.9% for the week ending July 9th, with purchases down 3.1% and refinancings down 2.9%.

“Mortgage purchase applications have remained exceptionally weak since the end of the homebuyer tax credit,” said economists at Nomura. “Although the correlation between applications and sales has been poor in recent years, we believe this suggests additional downside risk to the near-term outlook for sales.”

8:00 ― Credit Suisse reports second-quarter earnings.

9:00 ― Wells Fargo reports second-quarter earnings.

10:00 ― Ben Bernanke, chairman of the Federal Reserve, gives the semi-annual “Humphrey-Hawkins” testimony before the Senate Committee on Banking, Housing, and Urban Affairs.

“The recent minutes from the June 22-23 FOMC meeting already provide a window on what will be contained in the Chairman's prepared testimony,” said economists at IHS Global Insight. “The Fed is maintaining its very accommodative position on policy in view of weak near-term growth prospects, huge resource slack and the virtual absence of any inflationary pressures. However, the question and answer will likely zero in on what more the Fed could do at this juncture, given the downside risks to the outlook that were flagged in the minutes, downside risks that have become more salient since the FOMC met at the end of June. This part of the testimony will definitely be worth tuning in to.”

Thursday:

8:30 ― After months of disappointing numbers, the weekly Jobless Claims report finally reported a better-than-expected headline last week when the Labor Dept. said there were 429k claims in the week ending July 10 (a weekly fall of 29k). Unfortunately, practitioners of the dismal science had to point out seasonal distortions owing to the annual retooling of auto manufacturing plants, rather than actual labor growth, were the likely driving force. Economists expect a return to the 450k trend this week, though others point out that seasonal issues could take another few weeks.

“Barring some sort of fluke, claims will rebound this week, but the size of the move is anyone’s guess,” said Ian Shepherdson from HFE. “We tentatively look for an increase to about 460k, the underlying trend from 429k.”

Even if the headline numbers remain near last week’s levels, economists at BBVA point out that the historical average is 361K claims. 

“The labor market is expected to be at the forefront of the Fed’s agenda and could play an important role in future interest rates and policy decisions,” they added. “The current expectation of a slow labor market recovery supports the expectation of low rates for a prolonged period of time.”

9:30 ― Ben Bernanke, chairman of the Federal Reserve, again testifies, this time before the House Committee on Financial Services at the U.S. House of Representatives.

10:00 ― Economists are expecting a deep plunge in the Existing Home Sales Index. In May the index dropped 2.2% from 5.79 million annualized sales to 5.66 million. With the end of the homebuyer tax credit, a major decline to 5.10 million is anticipated by analysts polled by Reuters. Much uncertainty is reflected by predictions, which range from 4.25 million to 6.20 million.

“A very large drop in existing home sales is coming, the only question is when,” said economists at Nomura Global Economics. “The existing home sales report measures contract closings, and in order to receive the federal homebuyer tax credit, buyers needed to close their sales by the end of June. This month's report could therefore show an increase in closings as buyers rush to capture the credit, or a modest decline, as more time has passed since the original signing deadline (end-April).”

Analysts at IHS Global Insight said the 30% decline in the Pending Home Sales Index for May, plus the recent slide in the Mortgage Bankers Association's Purchases Index to a 13-year low, indicate a plunge in existing home sales by July: “We are expecting a 10% drop in existing home sales in June, and a similar, perhaps even worse, hit in July”

10:00 ― The final data release of the week is the Leading Indicators Index, a composite measure that seeks to gauge overall trends in the economy. Unfortunately, those trends are expected to be negative. Economists polled by Reuters look for a 0.3% drop in June, a drop sparked by the stock market, a slowdown in manufacturing, and weak housing demand.

“After rising for fourteen consecutive months, the index is forecasted to drop 0.4% due to widespread weakening across components,” said economists at BBVA. “Initial jobless claims rose, the S&P500 dropped, manufacturers orders slowed and building permits are expected to drop. This result would be consistent with our expectation of a slower recovery in the second half of the year.”

11:00 ―  Treasury announces the terms of the upcoming auction cycle:  2 year Notes on the following Tuesday, 5 year notes on following Wednesday, and 7year notes on following Thursday

Friday:

No significant data is released in the US, but contagion gets a second chance to grip the markets when the European Central Bank releases the results of EU bank stress tests.

Here are Reuters Consensus Estimates...