Financial markets don’t seem pleased by the $940 billion healthcare bill. One morning after the House of Representatives passed the President’s initiative, equity markets are sharply lower.
One hour before the open, Dow futures are off 53.00 points to 10,634 and S&P 500 futures are down 7.30 points to 1,149
Meantime, crude oil futures are down $1.26 to $79.71 per barrel while Gold is lower by $3.30 to $1,104.30.
Economists from BMO point out that global economics concerns are also pushing down equity prices Monday.
“Worries about policy tightening in Asia, following India’s rate hike last Friday afternoon, and ongoing concerns over Greece are weighing on global equity markets,” they wrote early morning. “The US$ is mildly stronger, as are Treasuries, benefitting from the risk aversion.”
The week ahead is relatively slow overall but for housing, this week is key. Tuesday will likely see a third straight decline in existing home sales, Wednesday will give markets the latest mortgage applications figure, and Thursday’s new home sales index could improve by a margin.
In the bond market, the Treasury Department will sell $118 billion of two-five-and seven year notes. This will be the main source of motivation for bond traders in the week ahead.
Key Events This Week
Monday:
No significant data.
Treasury Auctions:
- 11:30 ― 3-Month Bills
- 11:30 ― 6-Month Bills
3:45 ― Dennis Lockhart, president of the Atlanta Fed, speaks on the economic outlook at the Naples Council on World Affairs in Naples, Fla.
Tuesday:
10:00 ― Existing Home Sales unexpectedly fell 7.2% to an annualized pace of 5.05 million sales in January, subtracting from the record 16.2% plunge in December. The double-hit pushed sales to a seven-month low, and with the tax incentive expiring in April things will likely be getting worse. The expectation from economists is that February sales will fall to 5.00 million, reflecting broad weakness as well as poor weather.
“January’s decline in pending home sales, coupled with the severe winter weather in some regions, point to slower sales,” said economists from BBVA. “In the recent winter months, sales have waned after surging prior to the anticipated expiration of the tax credit for first time buyers. However, favorable mortgage rates and low prices are expected to continue to attract buyers to the market.”
Taking a broader view, Ellen Zentner from BTMU wonders if more fundamental changes to the housing industry have already taken place.
“The housing market has hit a pot hole at the start of 2010, most likely the combined result of waning government stimulus and unusually poor weather in the first two months of the year,” she wrote in a weekly note. “Both of these unfavorable conditions are the kinds that reverse themselves in subsequent months, which means after the early-year hiccup the housing market recovery will resume. But if these factors are masking some deeper underlying problem, such as a more permanent change in the way Americans view home buying, then not only would baseline forecasts need to be adjusted downward for slower housing activity, but for overall consumption as well since home buying is a significant driver of spending.”
10:00 ― After telling lawmakers it was time for "fundamental reform" of the government's role in housing finance, Treasury Secretary Tim Geithner will testify before the House Financial Services Committee on Housing Finance: What Should the New System Be Able to Do?
Treasury Auctions:
- 11:30 ― 3-Month Bills
- 1:00 ― 2-Year Notes
3:00 ― Janet Yellen, president of the San Francisco Fed, speaks on the economic outlook and central bank independence to Town Hall Los Angeles.
Wednesday:
8:30 ― Durable Goods are anticipated to rise 1% in February, building upon the 2.6% jump in January and a 1.8% gain in December. The expected lift is due to aircraft orders from Boeing and broad gains in core capital goods, while Defense orders are set to decline after the 23% leap in January.
Economists from Nomura only look for a 0.5% gain because of the reversal in defense spending. Elsewhere they see strength.
“We forecast a gain of 5.0% in core orders (non-defense capital goods orders ex-aircraft), the largest gain since December 2007,” they wrote. “We believe that business equipment spending has considerable momentum and that January's weakness (-4.1%) was temporary. Based on this increase in orders and their upward trend over the last four months, we forecast an increase in core shipments ― the component that enters into GDP ― of 2.0% month over month.”
10:00 ― New Home Sales are expected to see a modest improvement in February after seeing an 11.2% decline in January and a 3.9% drawback in December. The annualized pace of sales, currently at a record-low 309k, is set to rise to 315k, with economists’ estimates ranging from 290k to 330k.
“Sales are weak because builders, who must cover their costs, have trouble competing in today's saturated housing market,” said economists from IHS Global Insight. “Market conditions will improve later this year, as the economy adds jobs. But we are not expecting much improvement in February's numbers.”
Analysts from Nomura point out that builder sentiment remains “extremely weak” and that recent mortgage purchase applications “have shown few signs of life.” They look for a 2% increase in line with the consensus, but add that this “entirely reflects a payback from a steep drop in January and not fundamental strength in the sector.”
10:45 ― Tom Hoenig, president of the Kansas City Fed, speaks to the Financial Foundation for Main Street at the US Chamber of Commerce Center for Capital Markets Competitiveness in Washington.
Treasury Auctions:
- 1:00 ― 5-Year Notes
Thursday:
8:30 ― Initial Jobless Claims have so far averaged 460k claims in the first two weeks of March, down from 471k in February and 462k in January, but equivalent to the 460k average in December. Economists generally believe the survey indicates job growth when weekly claims are lower than 450k or 400k.
“Initial claims have been fluctuating around an average of 470K for the past nine weeks, which is indicative of the ongoing weakness in the labor market and supports our expectation of a slow recovery in employment,” said economists from BBVA.
Analysts from Nomura added: “Initial jobless claims have declined for three consecutive weeks and a temporary reversal this week therefore looks possible. We believe claims remain on a downtrend, however, and that labor market conditions in general are improving.”
9:10 ― Sandra Pianalto, president of the Cleveland Fed, speaks to the Bonita Springs Chamber of Commerce Market Pulse event at Florida Gulf Coast University, Bonita Springs, Florida.
Treasury Auctions:
- 1:00 ― 7-Year Notes
Friday:
8:30 ― Final revisions to Q4 GDP report are likely to leave the growth marker at an annualized rate of 5.9%. Economists believe final sales could be revised upwards, but a downward revision to construction spending could offset any gains there.
“We expect that inventories will be revised down slightly,” added economists from IHS Global Insight. “These would be marginal revisions, of little consequence since Q4 GDP is ancient history at this point.”
10:00 ― Consumer Sentiment has seen little movement in the past four months. The Reuter's/University of Michigan survey fell in the preliminary March survey to 72.5 as both components, present conditions and future expectations, both slipped.
“There’s usually little change between the preliminary and the final readings from the survey,” said Ian Shepherdson from High Frequency Economics. “But we were a bit surprised by the weakness of the preliminary March number . . . so we are hopeful of a modest upward revision.”
11:30 ― Kevin Warsh, a governor at the Federal Reserve, speaks to the Shadow Open Market Committee symposium on maintaining central bank independence, in New York.
