Wednesday, June 24, 2009

Economic indicators for June 24, 2009

We think durable goods will likely disappoint mainly because of the surprisingly positive numbers we saw last month. Given the economic environment, we think manufacturers continue to test the waters and remain conservative in order to keep inventories at low levels. They have not yet seen strong indications of recovery in consumption. We note the consensus varies as Econoday lists it at -0.5%, while Thomson's is at -0.7%. We think it will likely come in around -0.7% or lower.

Consensus estimates -
Durable goods: -0.7%

MBA Mortgage Application Survey is also likely to disappoint. This was supported by MBA's forecast revision released on Monday.

On the other hand, new-home sales could come in higher than the 360k consensus. MBA raised its new-home sales forecast earlier this week. We must note that the revision was based on lower prices and increase in new home construction, not necessarily a turnaround in the housing market. As we've mentioned before, this data is for the month of May. Given higher mortgage rates, we expect this annualized figure to decline in June.

Consensus estimates -
New-home sales: 360k

We don't expect any surprises from the FOMC meeting regarding the fed funds rate. However, we hope the Fed's comments on the economy will be more 'realistic', and if so, the mkt's reaction will be negative. Let's see if they mention anything about buying those great mortgage backed securities. Then again, nothing that these guys have done or said during the last 18 months has been 'realistic'.

Although the 2-year note auction was successful on Monday, the 5-year note auction may not do as well on Tuesday. Bidders may demand lower prices and higher than expected rates due to fear of inflation in the long-term.

We think durable goods, new-home sales and results of the 5-yr notes auction will impact the market more than anything else on Tuesday; and overall, we believe such impact will be negative. If we are correct, then the S&P 500 hitting 850 could be right around the corner.

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