Pending home sales rise in June

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Published Date 7/31/2017

Early this morning, the 10-yr. note traded unchanged from Friday and MBS prices were +2 bps from Friday’s close. As the morning moved on, the 10 yr back to unchanged and MBSs a little weak. This is a big week for economic data, with July employment on Friday the major data. In the meantime, both July ISM indexes, June personal income and spending, along with the Fed’s favorite inflation data, (personal consumption expenditures).

In pre-open trading, the stock indexes continued their relentless climb higher. Earnings, profits, and the continuing collapse of the US dollar all major propellants that are pushing equity markets higher. The S&P to post two consecutive quarters for double digit profits, the first time since 2011. Meanwhile, there is no increase in inflation and a minor geopolitical concern (North Korea) keeping interest rates very stable with little change in interest rates over the last two weeks.

At 9:45 am EDT, the July Chicago purchasing managers' index was expected at 61.0 from 65.7; as released, the index declined to 58.9. Still well above 50, although a little slippage shouldn’t be an issue in equity markets or bonds and mortgages. The June level at 65.7 was the highest the index in over three years. Unlike the two ISM reports the Chicago report includes both manufacturing and service sectors.

At 10:00, NAR reported June pending home sales (contracts signed but not closed): expected to have increased 0.9% from June’s -0.8%. Sales were up 1.5%, the first monthly increase in three months; yr./yr. pending sales +0.5% and NAR called the first half of the year flat in terms of comparison with 2016.

On the political front: no health care last week. The political divide and the divisions within the Republican party are increasing with every tweet out of Trump. Now, what will Congress do? Try again for a heath care bill or try a tax cut? Given the political calendar, there is not enough time to do both, and even if there were time, the gridlock is so pervasive now that neither is likely. As of last Thursday, the committee in charge can’t agree on what tax plan. Besides those key issues, both Republicans and Democrats have to face the September deadline funding the government after September 30 and lifting the debt ceiling, which the Treasury Department said on Friday must happen by September 29. Given the track record in Congress so far this year it isn’t a very optimistic outlook for and key legislation this year, as we have continually pointed out.

Regular readers know the 10 yr is tied in a very tight range (2.28%/2.32% for two+ weeks) keeping mortgage rates steady with very little change over the last few weeks. This week, with employment on Friday, the only thing we can see that could move rates lower before Friday would be a very unexpected sell-off in equity markets. Stock indexes are overbought technically speaking; about any other market would be seeing a huge correction given the magnitude of the condition, but there is no place to go for investors--and investors are not satisfied to take a breather, so onward and upward. One of the longer-term studies we do does project the DJIA to 23K before the end comes.

Overnight crude is over $50.00, the technical pivot, but since has fallen back somewhat. Crude oil at this level living on borrowed time in our view. OPEC and other oil producers have been cheating on output agreements for months.

This Week’s Calendar:

Monday
- 9:45 am July Chicago Purchasing Mgrs. Index (expected at 62 from 65.7, as reported 58.9)
- 10:00 am NAR June Pending Home Sales (expected +0.9%, as reported +1.5%)
Tuesday
- 8:30 am June personal income, spending and PCE (income +0.4%, spending +0.1%, PCE 0.0%, yr./yr. +1.3%, core +0.1%, yr./yr. +1.4%)
- 10:00 am July ISM manufacturing index (56.2 from 57.8 in June) June construction spending (+0.5% from 0.0% in May)
- No Time July auto and truck sales (16.8 mil from 16.5 mil in June)
Wednesday
- 7:00 am weekly MBA mortgage applications
- 8:15 am July ADP private jobs (+175K from 190K in June)
Thursday
- 8:30 am weekly jobless claims (244K unch from prior week)
- 10:00 am June factory orders and final durable goods orders (factory orders +2.6% from -0.8% in May) July ISM services sector index (56.9 from 57.4 in June)
Friday
- 8:30 am July employment data (unemployment 4.3% from 4.4%; non-farm jobs +180K from 222K; private jobs +175K; average hourly earnings +0.3%, yr./yr. +2.5%) June US trade deficit (-$44.9B)

Source: TBWS

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