Tag: finance

Since the 1950s, the Fed has embarked on 19 easing cycles, including the unconventional easing measures adopted during the course of this economic recovery, according to Deutsche Bank’s Binky Chadha. However of these, 9 or almost half, saw the economy eventually slip into recession; not only that, but the latest three rate cut resulted in a recession within 3 months of the first cut.

How did the economy fare following these rate cuts?

First, the good news for “insurance” rate cuts such as the one coming up, is that mini easing cycles were distinguished by very quick turnarounds in growth (2-3 months) following the first cut. Such quick turnarounds in growth, which risk assets are currently already pricing in, suggests factors other than the easing of monetary policy played key roles in driving them.

In Deutsche Bank’s view, a resolution of the trade war remains key to a turn up in growth at the current juncture.

The episodes that ended in recession saw the ISM continue to weaken, eventually bottoming – 8 months after the Fed began cutting – at low levels (median 36). In these recession episodes, the S&P 500 saw a full bear market, typically falling -27% from peak to trough, with a bulk of the decline occurring after the Fed had started easing. Indeed, on average, the S&P 500 did not bottom until 5 months after the Fed started cutting.  The distinguishing characteristic of the episodes that did not end in recessions was that after a moderate further decline in growth (to a median ISM 48), on average within 2-3 months after the Fed began easing, growth rebounded quickly. The equity market typically fell -7% after the Fed began easing, but bottomed quickly with growth. The S&P 500 ended above the pre-easing level within 6 months each and every time, rising a robust 12% on average.

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Of course, it’s worth pointing out that the Fed always eased when the growth of leading indicators slowed sufficiently. To wit, the Fed always eased when the leading indicators (LEI) have declined over a 6 month period, even when the decline was small.

The LEI has stalled since September 2018 and its 6-month growth has now fallen to zero, on the cusp of turning negative.

So the Fed cutting rates this month as is widely priced in, would be exactly on cue. On average the Fed began easing around 8 months after the ISM peaked and had fallen to around 50, so the current pattern is also in line with the historical script. Typically though the Fed began cutting 4 months after the S&P 500 peaked. And by the time it did so, the market was down a median -12% from its peak. Of course, this time the market keeps rising and printing new all time highs, in an apparent outlier to historic data. Indeed, as Deutsche Bank notes, “a rate cut with the S&P 500 close to or at a record high as is the case currently is a strong exception to this pattern, having happened only once previously, in 1995.“

But Fed easing historically proved to be a mini cycle only half the time, with a very quick turn up in growth the distinguishing feature. As noted above, of the 19 Fed easing cycles in response to slowing growth, 9 or almost half, saw the economy eventually slip into recession. On average, the S&P 500 did not bottom until 5 months after the Fed started cutting. In mini easing cycle episodes, the S&P 500 ended above the pre-easing level within 6 months each and every time, rising a robust 12% on average. Such quick turnarounds in growth, which risk assets are currently already pricing in, suggests factors other than the easing of monetary policy played key roles in driving them.

Some more detailed observations from Chadha’s full note, starting with the observation that the Fed is cutting on cue, but…

1. Bond market priced in line, growth and risk assets for a significant rebound in growth

US 10y bond yields have tracked growth indicators like the ISM Manufacturing index closely through this cycle (correlation 69%). The decline in yields since last November has been in line with the slowing in growth.

Equities on the other hand, where the S&P 500 relative to its 200 day moving average (to normalize for trends) has been robustly correlated (63%) with growth indicators such as the manufacturing ISM over the last 20 years, has become  increasingly disconnected since early June and looks now to be pricing in a significant rebound, from 51.7 currently back up to around 57.

In fact, Morgan Stanley over the weekend noted that the disconnect between the economy and equity markets has never been this great.

In price terms, this puts the S&P 500 around 10% above fair value based on current growth. While the S&P 500 has risen to new cycle highs even as earnings have stagnated for the last 10 months, credit spreads both IG and HY are well wide of their tights reached last year. Credit spreads are also closely correlated with indicators of growth (composite ISM correlations over the last 20 years are -78% for HG and -83% for HY). That said, credit spreads are tighter than levels implied  by current growth and are also pricing in a significant rebound, albeit less than equities are.

In commodities, as Gold has broken above its 7-year range it has become a focal point of market attention. On a relative basis, the ratio of Industrial to Precious Metals, which closely follows the ISM manufacturing (77%)…

…and US 10y yields (85%), has moved in line.

2. Next up in the growth slowdown: earnings set to disappoint globally

With growth the main driver of earnings, global PMIs, especially in manufacturing, have been declining uninterruptedly since early 2018. In the US, the manufacturing ISM has been falling for the last 9 months, and is down from above 60 to 51.7. Export orders have been leading the ISM and point to an imminent dip in the manufacturing ISM below 50, i.e., into contractionary territory, as do other leading indicators like new orders. Growth in the LEIs is also on the cusp of turning negative. The next and critical read on growth comes from Q2 corporate earnings results reported over the next few weeks. The cuts have lagged persistently negative macro data surprises, with which they are generally well correlated and we see the cuts as too little. DB’s top-down model for US earnings, incorporating US and global growth and the US dollar, also suggests that consensus estimates are too high. So we expect either continued downgrades into or  disappointing results. Similarly, earnings estimates in Europe also look too optimistic and several companies have already issued negative guidance in recent weeks. Earnings estimates in Japan and in EM have fallen more significantly but remain vulnerable, with trends in growth and data surprises still headed downward

So As Jim Reid summarizes, history suggests a much higher probability of an imminent recession than markets do and also that we’re at quite a binary moment for markets as the Fed (and other central banks) embark on a fresh easing cycle.

via ZeroHedge News https://ift.tt/2Ka9MN1 Tyler Durden

BYND is down over 14% this morning  – the biggest intraday drop since the IPO – as investors take some money off the table ahead of tonight’s earnings…

Short interest, according to Bloomberg, remains high.

Wall Street expects the company to lose 9 cents a share from $52.5 million in sales.

Price to Sales Ratios…

• Beyond Meat: 118

• Facebook: 9.9

• Twitter: 9.2

• Microsoft: 8.5

• Google: 5.7

• Amazon: 4.1

• Apple: 3.9

• Tesla: 2.0

What could go wrong?

via ZeroHedge News https://ift.tt/2MtYc1Y Tyler Durden

China has sentenced a so-called “cyber-dissident” to 12 years in prison for leaking state secrets on his controversial website, according to The Guardian. 

Huang Qi was found guilty of “leaking national state secrets and providing state secrets to foreign entities” to his website, 64 Tianwang – named after the bloody 1989 Tienanmen Square crackdown on pro-democracy protesters. 

In addition, Huang will be stripped of political rights for four years. 

According to human rights advocates, Huang was one of the most ‘prominent and well connected’ activists monitoring human rights in China today, and his imprisonment will silence an important voice in the debate. 

“It sends a strong signal to others documenting abuses, who are already under threat. If they shut down and silence the human rights monitors, it will make it harder to know about the rights abuses going on inside China,” said Frances Eve, deputy director of research at Chinese Human Rights Defenders. 

Huang’s website, which reported on local corruption, human rights violations and other topics rarely seen in ordinary Chinese media, is blocked on the mainland.

The website was awarded a Reporters Without Borders prize in November 2016. A few weeks later, Huang was detained in his home town of Chengdu, according to Amnesty International.

Huang’s work has repeatedly drawn the ire of Chinese authorities. In 2009 he was sentenced to three years in prison after campaigning for parents of children killed in the 2008 Sichuan earthquake, which left nearly 87,000 people dead or missing and authorities facing huge public anger over shoddy building construction.

Five years later Huang and at least three citizen journalists who contribute to 64 Tianwang were detained by police after the site reported on a woman who had set herself on fire in Tiananmen Square.

Eve said Huang’s sentencing is effectively a death sentence, given his deteriorating health. –The Guardian

“His is an outrageously long sentence for a citizen journalist documenting human rights abuses” said Eve. “It seems designed to kill him in detention, totally out of proportion with what they were charging him with.” 

Huang’s 85-year-old mother, Pu Wenqing, has been subject to police surveillance, and has been blocked from leaving her home or having visitors. She says her phone line is often blocked as well – and hadn’t yet received news of her son’s sentencing. 

“I don’t get the news. People can’t get in and I can’t get out,” she said. 

via ZeroHedge News https://ift.tt/32QKxYG Tyler Durden

Authored by Scott Minerd via Barron’s,

In the runup to the Federal Reserve’s Open Market Committee meetings on July 30 and July 31, policy makers are debating the value of what would normally be considered unorthodox policy actions. The consequences of the Fed’s actions in the next week – the U.S. central bank is expected to cut interest rates by a quarter of a percentage point – could be with us for much longer than we think, culminating in the next recession and increasing the risk to financial stability.

In the meantime, the Fed could be delivering yet another sugar high to the economy that doesn’t address underlying structural problems created by powerful demographic forces that are constraining output and depressing prices.

By almost every measure, policy makers should be considering another rate hike, not a rate cut, in anticipation of potential economic overheating from looming limitations on output. Instead, debate has been focused on the need to take preemptive action to avoid a potential slowdown.

An abrupt shift in thinking was set in motion last December when, after raising overnight rates by a quarter of a percentage point, Fed Chairman Jerome Powell signaled more hikes would come and that balance-sheet reduction was on “autopilot.” Alarmed by the market tantrum that ensued, Fed policy makers began a mop-up campaign that included the Fed’s now-famous “pivot” to patience.

While the Fed has more than succeeded in stabilizing markets, the ensuing liquidity-driven rally in various markets has boosted asset prices, including stocks, bonds, precious metals, energy, and even cryptocurrencies.

As Europe faces prospects that negative rates might become a long-term fixture in the euro region, concerns are mounting in the U.S. that a global slide toward negative yields could infect the market for Treasury securities, should the U.S. slip into a recession. These concerns are well founded.

In the postwar era, the Fed has reduced short-term interest rates by an average of 5.5 percentage points during easing cycles associated with recession. The required stimulus in the next recession could necessitate large-scale asset purchases of nearly $5 trillion to overcome the monetary limitations of the zero bound. Such a policy action could result in negative Treasury yields.

To immunize against the global contagion of negative rates, the Fed is intentionally overheating the U.S. economy in the hope of pushing inflation above its 2% target rate. Once inflation approaches some undefined rate, perhaps 2.5%, the Fed likely will reverse course and lift rates above today’s levels, creating another set of risks.

Additional accommodation this late in the business cycle is likely to push asset prices higher, just as in 1998, when the Fed cut rates by 75 basis points (a basis point is one-hundredth of a percentage point) during the Asian crisis, only to reverse course nine months later by raising short-term rates to the cycle high. Just as Fed accommodation inflated the internet bubble then, asset inflation associated with stimulative policy at this point in the cycle is likely to have a similar impact.

Chairman Powell has been clear that the Fed will go for broke, doing whatever is necessary to keep the expansion going. Most likely, a quarter point next week will be followed by another half percentage point before year end.

The real problem leading to the depressed yield curve can’t be solved by the Fed, short of the remote possibility of an overt policy to increase inflation well above 2%. This problem is the product of structural changes within the economy that have reduced growth potential relative to the past 50 years.

Demographics play an important role. Not only is an aging population creating an acute labor shortage, but the opioid crisis and failures in education and job training are limiting the supply of skilled labor.

Without growth in supply-side contributors including labor, capital, and other forms of investment, and increased demand associated with a faster-growing, younger demographic, the real neutral rate—or the Fed’s sweet spot to maintain economic output—is likely to remain low and may even fall into negative territory. The depressed neutral rate is limiting the power of policy makers to stimulate demand without risking significantly higher inflation and financial instability.

The simplest way to avoid recession and the associated negative rates would be a rapid increase in the supply of labor, aided by education, job training, and solutions to address the blight of opioids. A rational immigration initiative could quickly offset the risks of a slowing economy by providing more workers to fill open jobs. Two million new workers could raise output potential by 2% or more. This would push the neutral rate higher by stimulating economic growth while increasing tax revenue due to the rapid growth in personal income.

The Fed’s current policy of anticipatory and preemptive rate cuts likely will lead to unsustainably high asset prices and increased financial instability. This can only make the next downturn worse. If the U.S. continues down the current policy path, we will find out that the Fed’s cure for avoiding a near-term recession and negative interest rates may ultimately make the disease worse.

*  *  *

Scott Minerd is co-founder and global chief investment officer of Guggenheim Partners, and a member of the Board of Overseers of the Hoover Institution.

via ZeroHedge News https://ift.tt/2SMx3bO Tyler Durden

Growth in residential remodeling spending is expected to fall through 2H20, according to the Leading Indicator of Remodeling Activity (LIRA) published by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.

The leading indicator [LIRA] forecasts that annual growth in homeowner expenditures for improvement will plunge 6.3% in the current quarter to just .40% by late spring 2020, an ominous sign that a deep structural slowdown which started in 1Q18 is now spreading like cancer through the broader economy.

“Declining home sales and homebuilding activity coupled with slower gains in permitting for improvement projects will put the brakes on remodeling growth over the coming year,” says Chris Herbert, Managing Director of the Joint Center for Housing Studies. “However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some.”

“With the release of new benchmark data from the American Housing Survey, we’ve also lowered our projection for market size about 6% to $323 billion,” says Abbe Will, Associate Project Director in the Remodeling Futures Program at the Center. “Spending in 2016 and 2017 was not nearly as robust as expected, growing only 5.4% over these two years compared to 11.9% as estimated.”

Fannie Mae has reported sales of existing homes will total 5.35 million in 2019, flat from last year’s 5.34 million. Data from the National Association of Realtors shows existing-home sales reached a post-housing-bust high of 5.51 million in 2017 – but since – the trend has stalled.

Another measure of the remodeling market is the confidence of building contractors which topped in December 2017 and has formed a top comparable to what was seen in June 2005, June 1999, November 1993, and December 1986/88. Over the last three decades, as soon as the Federal Reserve transitions from a tightening cycle to pause, then cutting, the confidence of building contractors tends to crash.

With homebuilder sentiment expected to slump for the next four quarters, XHB SPDR S&P Homebuilders ETF, which is heavily weighted with Williams-Sonoma (4.97%), Whirlpool Corp (4.81%), Lowe’s Companies (4.61%), and the Home Depot (4.59%), companies that are widely popular with contractors and homeowners looking to remodel, could be headed for a plunge.

But through the summer, Wall Street anticipates that rate cuts will produce a soft landing with a tremendous rebound in the 2H; and in our humble opinion, a rate cycle is nine months too late – stimulus in the form of rate cuts will be less effective than ever before to save President Trump’s moribund economy.

via ZeroHedge News https://ift.tt/32VlNP2 Tyler Durden

Authored by Mike Shedlock via MishTalk,

After a long sales boom, dealers are struggling to sell cars.

New models are on the way but the Lots are Full Car Dealers Say.

“We are turning down cars and are being more picky on the cars we stock,” said Brian Benstock, general manager of Paragon Honda in New York City. “We just can’t take more. We’re full.”

New car sales have been slumping in many of the world’s major auto markets. In China, sales were down more than 12 percent in the first six months of the year.

In the United States, after many years of strong sales, many consumers are driving vehicles that don’t need to be replaced. Newer cars and trucks tend to be more durable and hold up longer than cars made even a decade or two earlier. At the same time, the average price of new vehicles has risen to around $35,000, while interest rates on auto loans have edged higher. That means people have to be willing and able to spend more to buy a new car than they were just a few years ago.

“It’s a double whammy,” said Mike Jackson, chairman of AutoNation, the nation’s largest chain of new-car dealerships. “Customers are having monthly payment shock.”

The slump in car sales has already forced some companies to cut production and jobs. General Motors recently stopped making cars at a plant in Lordstown, Ohio, that made the Chevrolet Cruze and is winding down manufacturing at another factory in Detroit. Honda recently ended a shift at its plant in Marysville, Ohio, that makes its Accord sedan and other models.

What is perhaps most worrying for the industry is that sales of larger vehicles — S.U.V.s and trucks — that had more than made up for a recent collapse in purchases of sedans, are showing signs of strain.

Despite declining car sales manufacturers kept of profits by selling more expensive SUVs but the boom is now over

Trump won the 2016 election with help from rust-belt states. Now manufacturers are scaling back production on Michigan and Ohio.

Expect this trend to accelerate.

via ZeroHedge News https://ift.tt/2K0m4bT Tyler Durden

Sterling has plunged back below 1.23 for the first time since March 2017 after new U.K. Prime Minister Boris Johnson’s first high-level Brexit cabinet meeting today.

Unless the EU agrees to re-open negotiations, Johnson’s top aide Michael Gove warns that a ‘no deal’ exit is the most likely outcome.

“We still hope they will change their minds, but must operate on the assumption that they will not,” Gove wrote in the Sunday Times.

“No deal is now a very real prospect, and we must make sure we are ready.”

And nothing this morning has improved the prospects, prompting traders to sell hard.

This is the weakest level for Sterling since March 2017…

And as cable crashes to FTSE stocks soar…

Most worrying for many is the fact that, as Bloomberg reports, Dominic Cummings, a key leader in the 2016 Brexit campaign, called advisers to the prime minister’s residence Friday night and told them Brexit will happen “by any means necessary,” the Times said. Cummings said Johnson is prepared to suspend Parliament or hold an election to thwart those who may seek to block a no-deal Brexit.

via ZeroHedge News https://ift.tt/2KgvC1I Tyler Durden

The “most important week of the year” is finally here, when in addition to an avalanche of economic data including US payrolls, European PMIs, BOE and BOJ announcements, and the restart of US-China trade talks, we are in for a historic treat with the Fed set to cut rates for the first time in over a decade, effectively ushering in the next recession (the US economy contracted within 3 months of the first rate cut in the last three economic cycles; this time won’t be different).

As Deutsche Bank’s Craig Nicol summarizes, it’s an incredibly busy schedule for markets this week as they anticipate what will be the first (fully priced-in) rate cut from the Federal Reserve since 2008, as well as the latest decisions from the Bank of England and the Bank of Japan. There are also a number of key data releases, with the US jobs report, Q2 Euro Area GDP and manufacturing PMIs the main highlights. As all this occurs, we’ll see the resumption of US-China trade talks, along with further earnings releases as over 150 S&P 500 companies report.

With the much-anticipated FOMC decision finally taking place on Wednesday, that will be the key focus for markets over the coming week. Markets are expecting a rate cut, but the question of whether that will be a 25bp or 50bp cut is still on investors’ minds. At time of writing, markets put the probabilities at 82.5% for a 25bp cut and 17.5% for a larger 50bp cut, with DB’s US economists are expecting a 25bp cut in July, before further cuts in September and December, while Morgan Stanley is alone in expecting the Fed will go against the grain – and the NY Fed’s own warnings – and cut by 50 bps.

While the Fed can be expected to dominate the agenda, they aren’t the only major central bank that’s meeting next week. Ahead of the Fed, the Bank of Japan will be setting rates on Tuesday, with the consensus expecting policy will be unchanged. On Friday, they will also be publishing the minutes of their June Monetary Policy Meeting. Meanwhile on Thursday, we’ll have the Bank of England’s latest decision, as well as a press conference from Governor Carney and their quarterly inflation report. Although no change in rates is expected this week, markets are now expecting the BoE’s next  move to be a cut rather than a hike.

The data highlight this week will also be from the US, with the monthly jobs report out this Friday. After last month’s strong nonfarm payrolls number of 224k, the consensus is for the number to fall to 160k for July, with the unemployment rate remaining at 3.7%. Another data release to watch out for in the US will be the Conference Board Consumer Confidence number, which is out on Tuesday. June’s 121.50 reading was the lowest number since September 2017, so it’ll be interesting to see if there’s a pickup as expected.

In the Euro Area, we’ll get the first look at Q2 GDP numbers, with the consensus that growth will fall to 0.2%, down from 0.4% in Q1. We’ll also get the country breakdowns for France, Italy, and Spain, so it’ll be interesting to see whether there’s any divergence across the currency union. The other highlights this week will be the Euro Area unemployment rate for June on Tuesday, as well as the final manufacturing PMI on Thursday.

Turning to politics, this week will see the resumption of trade talks between the US and China. The US team, including Trade Representative Lighthizer and Treasury Secretary Mnuchin, travel to Shanghai next week to meet their Chinese  counterparts, beginning on Tuesday. The meeting comes after the G20 meeting between Presidents Trump and Xi, where they agreed to resume talks and Trump didn’t put further tariffs on $300bn worth of Chinese imports. Sticking with the US, this week will see the second round of the Democratic primary debates for the 2020 Presidential election, with the  two debates taking place on Tuesday and Wednesday night. Meanwhile in the UK, there’ll be a parliamentary by-election on Thursday in the Welsh constituency of Brecon and Radnorshire.

Finally, earnings season will continue, with 168 S&P 500 companies report this week. So far, of the 205 companies in the S&P 500 which have reported at time of writing, 78% have beat on earnings, and 59% have beat on sales. Highlights in the coming week include Apple, BP, Procter & Gamble, Mastercard and Pfizer on Tuesday; General Electric, Airbus and Lloyds  Banking Group on Wednesday; Royal Dutch Shell, Barclays, Verizon Communications,  General Motors, Rio Tinto and Siemens on Thursday; and Exxon Mobil, Chevron and RBS on Friday.

Summary of key events by day, courtesy of Deutsche Bank

• Monday: It’s a light start to the week with the key releases of note being Japan’s June retail sales overnight. After that we will get Spain’s preliminary July CPI, Italy’s June PPI and the UK’s June consumer credit, mortgage approvals and  money supply data. In the US the only release of note is July’s Dallas Fed manufacturing activity index.
• Tuesday: The main highlight of the day is going to be the outcome of the BoJ’s monetary policy meeting while in the US June core PCE is also due. In terms of data, we will get the Euro Area’s June unemployment rate, preliminary Q2 GDP in France along with June consumer spending, preliminary July CPI in Germany along with August GfK consumer confidence and July confidence indicators for the Euro Area. In the US, we will get June personal income and spending data, May S&P Corelogic house price index and July Conference Board consumer confidence indicator. Trade talks between the US and China will resume and it’s the first of two nights of Democratic primary debates. Earnings releases include Apple, BP, Procter & Gamble, Mastercard and Pfizer.
• Wednesday: The outcome of the FOMC meeting followed by Chair Powell’s press conference (07:30pm London Time) will be the main event of the day. Overnight China’s official July PMIs are also due. In terms of data, we’ll get the UK’s July GfK consumer confidence, the Euro Area, France and Italy’s preliminary July CPI, Euro Area, Spain and Italy’s preliminary Q2 GDP, and Germany’s July unemployment report. In the US, we will get July’s ADP employment change and MNI Chicago PMI.  It’s also the second night of Democratic primary debates while earnings releasesinclude General Electric, Airbus and Lloyds Banking Group.
• Thursday: The main highlight of the day is going to be the outcome of the BoE’s monetary policy meeting followed by Governor Carney’s press conference, while the release of final July manufacturing PMIs is also due in Japan, China, the Euro Area, UK, Germany, France, Spain, Italy and the US. In the US, we will also get July Challenger job cuts, ISM manufacturing data and total vehicle sales along with latest weekly initial and continuing claims, and June construction spending. Away from data, BoJ’s Amamiya is also due to speak, while the UK has a parliamentary by-election. Earnings releases include Royal Dutch Shell, Barclays, Verizon Communications, General Motors, Rio Tinto and Siemens.
• Friday: It’s a payrolls Friday with July’s nonfarm payrolls report due in the US (1:30pm London Time). Prior to that, we will get the BoJ’s June Monetary Policy Meeting minutes, the UK’s July construction PMI and the Euro Area’s June PPI and retail sales. In the US, we’ll get the June trade balance, factory orders, and final durable and capital goods orders along with the final University of Michigan survey results. Earnings releases include Exxon Mobil, Chevron and RBS.

Looking at just the US, the key event this week is the July FOMC meeting, with the release of the statement at 2:00 PM ET followed by Chair Powell’s press conference at 2:30 PM. The ISM manufacturing report will be released on Thursday and the employment report on Friday. There are no other scheduled speaking engagements from Fed officials this week.

Monday, July 29

• 10:30 AM Dallas Fed manufacturing index, July (consensus -5.3, last -12.1).

Tuesday, July 30

• 08:30 AM Personal income, June (GS +0.4%, consensus +0.3%, last +0.5%); Personal spending, June (GS +0.3%, consensus +0.3%, last +0.4%); PCE price index, June (GS +0.06%, consensus +0.1%, last +0.16%); Core PCE price index, June (GS +0.19%, consensus +0.2%, last +0.19%); PCE price index (yoy), June (GS +1.32%, consensus +1.5%, last +1.52%); Core PCE price index (yoy), June (GS +1.57%, consensus +1.7%, last +1.60%): Based on details in the PPI, CPI, import price, and GDP reports, we forecast that the core PCE index rose 0.19% month-over-month in June, or 1.57% from a year ago. Additionally, we expect that the headline PCE index increased 0.06% in June, or 1.32% from a year earlier. We expect a 0.4% increase in personal income in June and a 0.3% increase in personal spending.
• 09:00 AM S&P/Case-Shiller 20-city home price index, May (GS +0.3%, consensus +0.2%, last flat): We estimate the S&P/Case-Shiller 20-city home price index increased 0.3% in May, following a flat reading in April. Our forecast reflects the appreciation in other home price indices such as the CoreLogic house price index in May.
• 10:00 AM Pending home sales, June (GS +1.5%, consensus +0.4%, last +1.1%): We estimate that pending home sales rose 1.5% in June based on regional home sales data, following a 1.1% increase in May. We have found pending home sales to be a useful leading indicator of existing home sales with a one- to two-month lag.
• 10:00 AM Conference Board consumer confidence, July (GS 126.0, consensus 125.0, last 121.5): We estimate that the Conference Board consumer confidence index rebounded by 4.5pt to 126.0 in July, reflecting continued increases in stock prices and other confidence measures.

Wednesday, July 31

• 08:15 AM ADP employment report, July (GS +140k, consensus +150k, last +102k): We expect a 140k gain in ADP payroll employment, reflecting roughly stable jobless claims but a potential drag from other ADP inputs. While we believe the ADP employment report holds limited value for forecasting the BLS nonfarm payrolls report, we find that large ADP surprises vs. consensus forecasts are directionally correlated with nonfarm payroll surprises.
• 08:30 AM Employment Cost Index, Q2 (GS +0.7% vs. consensus +0.7%, prior +0.7%): We estimate that the employment cost index rose 0.7% in Q2 (qoq sa), raising the year-over-year rate to +2.9%. Our Q2 wage tracker stands at +3.0% year-over-year (up from 2.7% for Q1).
• 09:45 AM Chicago PMI, July (GS 51.2, consensus 51.5, last 49.7): We estimate that the Chicago PMI rebounded out of contractionary territory in July, though we note that weak global manufacturing growth likely continues to weigh on the index.
• 2:00 PM FOMC statement, July 30-31 meeting: As discussed in our FOMC preview, we expect the FOMC to cut the funds rate by 25bp at the July meeting, as virtually all the signals from the Committee point this way. While we cannot entirely rule out a 50bp move, we assign subjective probabilities of 90% to a 25bp cut and 10% to a 50bp cut. Our view remains that the justification for cuts remains tenuous, as growth, employment, and inflation remain close to the Fed’s goals, financial conditions are very easy, and data have mostly surprised to the upside since the June FOMC meeting.

Thursday, August 1

• 08:30 AM Initial jobless claims, week ended July 27 (GS 215k, consensus 212k, last 206k); Continuing jobless claims, week ended July 20 (last 1,676k): We estimate jobless claims increased 9k to 215k in the week ended July 27, after decreasing by 10k in the prior week. The claims reports of recent weeks suggest that the pace of layoffs remains very low.
• 10:00 AM ISM manufacturing index, July (GS 52.5, consensus 52.0, last 51.7): After three straight declines, we expect the ISM manufacturing index to rebound by 0.8pt to 52.5 in July, reflecting a pickup in various business confidence measures.
• 10:00 AM Construction spending, June (GS +0.3%, consensus +0.3%, last -0.8%): We estimate a 0.3% increase in construction spending in June, with scope for an increase in private nonresidential construction and public construction.

Friday, August 2

• 08:30 AM Nonfarm payroll employment, July (GS +190k, consensus +170k, last +224k); Private payroll employment, July (GS +175k, consensus +170k, last +191k); Average hourly earnings (mom), July (GS +0.2%, consensus +0.2%, last +0.2%); Average hourly earnings (yoy), July (GS +3.1%, consensus +3.2%, last +3.1%); Unemployment rate, July (GS 3.7%, consensus 3.7%, last 3.7%): We estimate nonfarm payrolls increased 190k in July. Our forecast reflects low jobless claims, a 10-20k boost from Census hiring ahead of August canvassing, and minimal drag from Hurricane Barry—which struck at the end of the survey week. We expect the unemployment rate to remain at 3.7%, as continuing claims were broadly stable. Finally, we estimate average hourly earnings increased 0.2% month-over-month with the year-over-year rate stable at 3.1%, reflecting negative calendar effects but some scope for a further rebound in the supervisory category.
• 08:30 AM Trade balance, June (GS -$54.7, consensus -$54.5bn, last -$55.5bn): We estimate the trade deficit declined by $0.8bn in June, reflecting a decline in the goods trade deficit.
• 10:00 AM Factory Orders, June (GS +0.6%, consensus +0.7%, last -0.7%): Durable goods orders, June final (last +2.0%); Durable goods orders ex-transportation, June final (last +1.2%); Core capital goods orders, June final (last +1.9%); Core capital goods shipments, June final (last +0.6%): We estimate factory orders increased by 0.6% in June following a 0.7% decline in May. Durable goods orders rose in the June advance report, driven by a rebound in orders of aircraft and parts.
• 10:00 AM University of Michigan consumer sentiment, July final (GS 98.4, consensus 98.5, last 98.4): We expect University of Michigan consumer sentiment remained flat from the preliminary estimate for July. The report’s measure of 5- to 10-year inflation expectations increased by three tenths to 2.6% in the preliminary report for July.

Source: Goldman, Deutsche, Bank of America

via ZeroHedge News https://ift.tt/2Mx5xyb Tyler Durden

Authored by Richard Breslow via Bloomberg,

The Fed Is Busy Fighting Yesterday’s Battles

It’s a busy week ahead, and, I guess, only one thing matters. The Fed is poised to make its latest policy error.

And the economic numbers are largely irrelevant. The press has been chock-a-block this weekend with stories about income and wealth inequality…

The U.S. fares particularly poorly in recent reports. By some official measures it ranks worst in the developed world. So, naturally, as the FOMC views the world, anything they can do to get the stock market higher seems like just the prescription..

They are going to trickle down on the little people because, in the words of Chairman Jerome Powell, the improvement in employment has, “started to reach communities at the edge of the workforce.” It’s starting to take hold, they are sure of it. Their models insist that it works.

How dumb were people who thought savings were a prudent way to plan for the future…

The S&P 500 sits at record highs. That’s a good thing. Yet we need to get it higher to combat growing inequality and populism? Stocks will continue to be attractive as the concept of earnings multiples becomes largely irrelevant in a world of negative interest rates. Something is better than nothing. But that hasn’t and won’t be a way to conduct social policy. Frankly, using global headwinds as a justification for rate cuts is a more satisfying explanation.

This Friday’s non-farm payrolls report will surely be an interesting one. It’s expected to be pretty good. In fact, most of the numbers on the calendar are slated to show decent strength or, at least, movement in the right direction. But the Fed needs to convince people that it will remain on an accommodative path. We’re still debating 25 versus 50 basis points.

There’s a lot of game theory that goes into successful trading. But managing the economy isn’t supposed to be an exercise where we strategize about how to get maximum shock and awe bang for the buck with financial conditions with our policy pronouncements. Buying the rumor, selling the fact is meant to be something investors, not rate setters should be thinking about.

The dollar is bid. As we head into month end, the longer term charts look pretty good. The latest comments from the administration eschewing the likelihood of efforts to cheapen it have relieved a lot of anxiety about chasing it higher, or at least constantly looking for places to sell. Although many traders wish they had said so a percent or so lower. Buying it with the dollar index within hailing distance of 98.50 is hard but it feels like there will now be bids all the way down toward 96.00. Especially because the euro-at-$1.20 crowd has gone mercifully quiet.

Most interesting, is the inability of Treasury yields to move in either direction. Especially since we expect more QE from Europe imminently. They should be watched very carefully how they behave on any pullbacks, because the assumption that they are a one-way bet seems a bit up in the air.

via ZeroHedge News https://ift.tt/2K1Xurt Tyler Durden