Stocks are looking to continue the rally from yesterday afternoon, with equity futures pointing upwards between 0.2% and 0.4%. Data at 8:30 could change that, as the Personal Income & Outlays report is one of this week’s key releases. But expectations are that incomes rose slightly and consumption made its third straight gain. If so, markets should open higher when the opening bell sounds at 9:30.
“Financial markets are welcoming more risk this Friday morning, with U.S. stock futures pointing higher, European bourses and most Asian equities rallying, and the USD and JPY slightly weaker,” said Jennifer Lee from BMO. “Buried beneath the green, though, was another worrying selloff in Chinese stocks.”
The Shanghai composite closed 2.9% lower, followed by a 0.7% drop in Hong Kong’s Hang Seng. However, equities make gains in Japan (+0.6%) and Australia (+0.9%), and in Europe France’s CAC-40 is up 1.39%, while England’s FTSE 100 is currently up 0.9%.
In the headlines:
Smaller banks continue to feel weight of the recession: The Federal Deposit Insurance Corporation said that as of the end of June, about 5% of the nation's banks were at risk of failing. That’ equates to 416 banks with deep problems, in addition to the 81 banks already closed this year. "We think there are hundreds of failures to come," said one bank analyst. According to the New York Times, “The banking industry lost $3.7 billion in the second quarter amid a surge in bad loans made to home builders, commercial real estate developers and small and midsize businesses.”
Federal Reserve Might Not Purchase back MBS: Bloomberg News reports that the Fed “may not need to buy the full $1.25 trillion in mortgage-backed securities the central bank has authorized by year-end.” Richmond Fed President Jeffrey Lacker said yesterday he would evaluate “whether we need or want the additional stimulus” from buying the full amount, while St. Louis Fed President James Bullard added that “it might not be necessary.”
Key Releases Today:
8:30 ― Views are mixed on the Personal Income & Outlays report. Last month, incomes were slashed 1.3%, but having gained an equivalent amount the month before, the news wasn’t shocking. Analysts expect a 0.1% gain in income this month, but forecasts range from -0.1% to +0.4%.
“Due to rising joblessness and shrinking wages, personal income likely fell again in July, extending a downward trend outside of government support measures,” said Sal Guatieri from BMO Capital Markets.
Outlays ― or spending, to the lay-folk ― are expected to rise for the third straight month, largely on account of the Cash for Clunkers program in the final week of the month.
“Spending fell 1.2% in the second quarter, and although we expect it to rise 2.5% in the third, that is almost all due to Cash for Clunkers,” said economists at IHS Global Insight.
Forecasters look for a 0.3% monthly advance, building on a 0.4% gain in June.
10:00 ― Preliminary results from the Reuters/University of Michigan Consumer Sentiment report showed confidence falling to 63.2 from 66.0. But with the weekly ABC Consumer Comfort survey modestly improving and the Conference Board measure ticking upwards on Tuesday, analysts are looking for the final revision to be a tad higher.
