The transition from June to July offers a packed schedule for investors. No data comes out Monday and Friday is a holiday, but the three days in between present key data and numerous speeches covering all fronts of the economy. 

The S&P 500 has gained 43% since its low in early March, and while some are calling a plateau inevitable, others believe positive data could convince investors that genuine recovery is on the horizon. 

The biggest release this week will be the Employment figures on Thursday, but all eyes will also be on the ISM Manufacturing survey on Wednesday. Those in real estate will want to check out if prices are stabilizing in the Case-Shiller Home Price Index, and then see how demand is holding up in the Pending Home Sales Index.

Key Releases:

Tuesday: 

9:00 ― In the S&P Case Schiller Home Price Index for March, the press release stated there was “no evidence that a recovery in home prices has begun.” There’s little reason to believe that sentiment will have changed in April. Prices have fallen 32% since the housing bubble burst, and economists still look for median prices to deflate 10 - 15% over the next year.

9:45 ― The ISM Chicago Business Barometer is the final regional manufacturing report to be released each month, ahead of the nationwide study to be posted Wednesday. 

The Chicago index came in with a weak 34.9 reading in May, with new orders dropping 5 points to 37.3, but analysts are optimistic this month: the consensus looks for a 40.0 score. That’s still a far cry from the 50-level indicating growth, but it gives hope that recovery could well be on its way in the final quarter.

10:00 ― The Conference Board’s measure of Consumer Confidence saw a massive jump to 54.9 from 40.8 in May. Analysts look for the upward trend to continue this month with a 57.0 print. The expectations component has been leading the way recently, rising more than 40 points in the past two months.

12:00 ― Jim Bullard, president of the St. Louis Fed, speaks from Philadelphia; a Q&A is expected.

21:00 ― Janet Yellen, president of the San Francisco Fed, speaks on the economy from California.

22:00 ― Thomas Hoenig, president of the Kansas City Fed, speaks on the economic crisis to NYU’s Stern School of Business.

Wednesday:  

8:15 ― The ADP Employment survey reported private-sector losses of 532,000 jobs in May, therefore failing to anticipate the sharp reduction in the official figures. This month employers are anticipated to have cut another 363,000 jobs, but it’s unclear if the ADP numbers can do more than simply hint at the official figures.

10:00 ― Until hard data is released in the Industrial Production report, the key index for U.S. Manufacturing is the ISM survey. Last month the index improved from 40.1 to 42.8, and the consensus looks for the index to hit 45.0 in June, just 5 points below the 50-threshold indicating growth. Forecasts are optimistic in part because the new orders component broke into growth mode last month.

Michael Feroli from JPMorgan Economics looks for 47.0 score this month. He noted that manufacturing output declined more than 15% in the 12 months ending in March, but a recent rebound in Asia points to a simultaneous recovery in the months ahead. 

“We expect this recovery to take off with a bang,” he wrote in a client note. “Global industry is projected to retrace roughly one-third of its recession losses by the end of the year, a development that would produce roughly 8% annualized growth during 2H09, rivaling the fastest pace of global output gains during the past two decades.”

10:00 ― It was unexpected when Construction Spending soared 0.8% in April, building on a 0.4% advance in March. Analysts expect some those gains to be pared back in May, with the consensus looking for a drop of 0.5%. However, forecasts range widely from -1.2% to +0.2%.

10:00 ― Pending Home Sales track home resales that have been signed but not finalized, thereby offering an advance look at the existing home sales index. However, not all sales get finalized, and last week the National Association of Realtors issued a press release condemning faulty appraisals, which they blamed for halting a recovery in real estate. The index is set to rise 1.1% in May following a 6.7% gain in April. 

Thursday:

8:30 ― The biggest data release each month is the Nonfarm Payrolls / Employment Situation report, which this month should lift the unemployment rate up two-tenths to 9.6%. Last month’s drop in payrolls was 345,000 ― significantly lower than expectations ― and since that time analysts have come to believe that the months of half-million job losses are behind us. 

The consensus looks for 350,000 jobs to have vanished this month, with forecasts ranging as low as 225,000 and only as high as 435,000.

“The markets’ collective view of the state of the U.S. economy is driven, above all else, by the payroll numbers,” said HFE economist Ian Shepherdson, who forecasts a -250k print. “Other data can point unanimously up, down, or sideways, but experience shows that the markets won’t be convinced until the message is validated by the employment data.”

8:30 ― Jobless claims will receive significantly less attention this week due to its rare simultaneous release with Nonfarm Payrolls, but if the two studies report consistent data than this weekly report could bolster near-term forecasts. 

Initial claims have been above the 600k mark for 21 straight weeks, and in the final week of June another 619k Americans are expected to have filed for first-time employment benefits. Meanwhile, continuing claims rose to 6.738 million in the last report, disappointing those hoping for a back-to-back moderation.

11:00 Treasury announces 3-, 10-, 30 year and 10 yr TIPS auctions

Friday:

Markets closed to Independence Day

Well the big event for the week and month came and went with no reaction.  The FOMC meeting concluded yesterday with the release of their policy statement.  No surprise announcements and the verbiage was little changed from last statement.   Many a mortgage professional was hoping for some announcement that would spark a major rally to get rates back below 5%, but no such announcement was included, after reading there was a feeling of  disappointment due to the lack of housing verbiage.   Maybe the Fed believes that housing can correct with mortgage rates in the mid  5% range which is still incredible, historically speaking.   

We have some economic data hitting the wires this morning.  First on the slate is jobless claims which totals the number of Americans that filed for first time unemployment benefits for the prior week.  Recent reports have shown an easing in the loss of jobs, but today’s report indicates a sizable increase over expectations.  First time claims for the week of June 20 came in at 627,000 when expectations called for only 613,000.  Last week’s numbers were also revised worse by an additional 4000 claims.  The continuing claims, which totals the number of Americans that continue to file for benefits due to the lack of finding a new job, also moved higher by 29,000 to 6.738 million.  Following the release of this report, mortgage backed securities started to move higher on the day.  As MBS move higher, consumer borrowing costs move lower.

 

Next came the release of the final revisions to first quarter Gross Domestic Product(GDP).  We receive three reading for GDP.  First is the initial reading, than revised reading and the final reading which we received this morning.    The Commerce Department reported that final first quarter GDP was revised slightly better at a contraction of 5.5%.  Economist’s expectations was for the final reading to be -5.7% matching the revised reading we received last month.   Since this report is showing what happened last quarter, the better than expected number had no impact on the markets.  As part of this report, we get a reading on inflation which once again shows that inflation is not a concern as of today.  The FOMC statement yesterday reiterated that inflation is in check for the foreseeable future but they did add some caution due to the recent run up in oil prices.

 

Also this morning  Federal Reserve Chairman Ben Bernanke is testifying on Capitol Hill regarding the acquisition of Merrill Lynch by Bank of America.   There is some suspicion  that he forced Bank of America into the acquisition of Merrill against their will and asked that they hold back important information regarding losses at Merrill.   Any time Mr. Bernanke speaks, investors will be paying attention as his words can move the markets.   Any major news items from the testimony will be covered in detail by Matt and AQ.

 

The final news worthy item today is the last treasury auction.  Today at 1pm eastern, the Treasury Department will auction $27billion in 7 year treasury notes.  The first two auctions of the week were met with very good demand especially by indirect bids.  Indirect bids measure demand from foreign investorswhich is one of the key factors that determine whether the auction is successful or not. Weak demand can cause treasury yields to move higher which will apply pressure on mortgage rates to follow. 

 

Early reports from fellow mortgage professionals are indicating that rates are slightly better this morning.  The par 30 year fixed rate mortgage has fallen to the 5.125% to 5.375% range for the best qualified consumers.  In order to qualify you must have a FICO credit score 740 or higher, a loan to value 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.

 

Since the release of the jobless numbers which helped MBS to move higher on the day, they are starting to give back the gains.  The direction of MBS will be dictated by the movement of treasuries.  This is clearly evident when comparing on a graph of the two.  In order for MBS to move higher today(as MBS move higher in price, mortgage rates move lower), we need treasuries to move lower in yield.  Currently the benchmark 10 year treasury note is trading at a yield of 3.70 after touching 3.66 earlier this morning.  When treasuries were at the low yield of the day, MBS were at their best levels.  Matt and AQ inform me that 3.70 is a key level to maintain as it is a ceiling of resistance that will hopefully prevent the 10 year treasury note from moving higher.  The auction at 1pm will be very crucial as weak demand will apply a lot of pressure on treasury yields to move higher and maybe through the key 3.70 ceiling.  If we break above that key level, it might be a good sign to lock your loan as we are seeing the best rates of the week today.  If you are currently floating your rate, check in with the MBS Commentary blog.  They will inform you if reprices for the worse are imminent.   

Stocks have been extremely volatile Tuesday morning, and after opening higher all indexes are negative 90 minutes into the trading session.

The Dow is leading the decline with a 0.53% drop to 8294, while the Nasdaq is 0.50% lower at 1757, and the S&P is down 0.29% at 890.  This week has erased any year-to-date gains for the S&P, which is now down 1.47% since the start of the year.

The increased risk in equities has led investors into the safety of government bonds: the 10-year yield is down to 3.63%.

In data the main news this morning was the 2.4% gain in Existing Home Sales, which marked the first back-t0-back gain in sales since September 2005. 

The National Association of Realtors said demand is up due to falling house prices (down nearly 17% since last year), the first-time buyer tax credit, and low mortgage rates (the average 30-year rate was 4.86% in May.)

At the current sales pace, there is a 9.6-months’ supply of inventory on the market, compared to 10.2-months in the previous report and 10.9-months in March.


“The back-to-back gains in May could conceivably be an early indication that U.S. housing market activity may be on the mend,” said TD strategist Millan Mulraine. “Moreover, with pending home sales rising for three consecutive months in April momentum may perhaps be on the side of existing home sales.”

Also released at 10 am, the FHFA home price index, which is calculated using purchase prices of homes sold with mortgages guaranteed by Fannie Mae, showed a 0.1% decline in April, a much softer slide than the -1.7% print in March. The market consensus was for a 0.4% drop.

The FHFA index said prices were 6.8% lower than last year, but its results have been much more moderate throughout the recession than the Case Shiller index, which recorded an 18.7% decline in April.

Stocks are building on Thursday’s gains with all three major indexes climbing in the first 90 minutes of trading.

The Nasdaq is leading the way with a 1.62% increase to 1837, followed by a 0.91% gain in the S&P 500 to 927, while the Dow is up 0.66% to 8612.

Trading has been particularly heavy on ‘quadruple witching Friday’ ― the quarterly event marking the expiration of equity options, index options, single stock futures and index futures.

"What we've generally been seeing in this expiration cycle is people rolling over whatever options positions they have," Allen Greenberg, options chief for BNY ConvergEx, told the Wall Street Journal. "They're not necessarily looking for a big new move in either direction."

Year to date, the S&P is up 2.5%, though since Monday the index has lost lost 2.15% as the the Obama administration proposed new regulatory measures that have since gone to Congress. The S&P would have to move up 16 additional points to end this week on par.

No macroeconomic data has been released today, nor will any come out this afternoon.

Demand for mortgages plummeted last week, pushing the index tracking mortgage applications down to a seven month low, even as average rates for a 30-year fixed mortgage moderated, a weekly report said Wednesday.

Loan applications decreased 15.8% in the week ending June 12, according to the  Mortgage Bankers Association, who have been conducting the survey since 1990. Meantime, the Purchase Index fell 3.5%.

The average contract rate for a 30-year fixed-rate mortgage decreased from 5.57% in the prior week to 5.50%. This is only the third straight week that mortgage rates have been above 5%; as recently as May 15, the average rate was 4.69%.

Over the past four weeks, the index tracking loan applications has fallen by an average of 13.5%, even as the four week moving average for purchases has edged up 0.7%. 

With interest rates much higher than in recent weeks, it should be no surprise that the dip in demand was led by a whopping 23.3% drop in refinance activity.  


"When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates ― competition in this environment keeps mortgage companies honest," Cameron Findlay, chief economist at LendingTree.com, told Reuters.

Refinance-related loans accounted for 54.1% of all mortgages in the week, compared to 59.4% in the week before.  Adjustable-rate mortgages accounted for 4.3% of new applications, compared to 3.4% in the prior week.  

It’s worth noting that mortgage rates, despite recent advances, are still comparative low on an historical basis. At this time last year, the average rate was 6.57%.

Mortgage rates once again surged upwards, hurting prospects for a quick recovery in the housing market. This morning the Mortgage Bankers Association's Loan Application survey said demand for loans in the first week of June fell 7.2% compared to the previous week, as the average rate for a 30-year mortgage shot up 32 basis points to 5.57%.

This is only the second consecutive week that average rates have exceeded 5.00%, but already they are at their highest level since November.

“Since bottoming at around 4.61% in March, lending rates have trended higher and, over the past few weeks, have cooled refinancing activity, although new purchases are still rising,” said economist Jennifer Lee from BMO Capital Markets. 

With mortgage rates at historic lows in recent months, demand for homes had been increasing and many analysts said there were signs of stabilization in the housing market. Rising interest rates, however, will encourage potential buyers to remain on the sidelines.

Last week, Christina Romer, chairman of the White House’s Council of Economic Advisors, voiced some concern about the upward trend in rates.

“The refinancing boom that we've had in the last 3-4 months has been very good for consumers,” she said. “It's really kind of acted like a tax cut when you have your mortgage payment go down, so obviously we'd be happier if mortgage rates were lower and we're just going to have to see, again, sort of how all of this plays out.”

The MBA survey also said its Refinance Index fell 11.8% in the week, while the Purchase Index was able to advance 1.1%. Demand for refinance loans has been falling rapidly recently, accounting for just 59.4% of all applications last week ― the lowest share of activity since November. In the prior week, 62.4% of all loans were refinance-related.

 

Pushed up by news that Treasury may allow $50 billion of repayment from banks involved in TARP, equities opened higher Tuesday, but after the first hour of trading indexes are struggling to hold onto those gains. Meantime, oil is once again approaching $70 per barrel, and 10-year yields are down a tenth to 3.84%, 

As of 10:30, the S&P has just dropped below the open, down 0.01% to 939. The Dow is also down 0.16% to 8750, while the Nasdaq has stayed afloat, up 0.41% at 1850.

Data releases had minimal impact on market sentiment this morning. 

The twin retail sales releases were mixed at best, with the ISCS-Goldman Sachs survey reporting that sales rose 0.2% in the first week of June compared to the last week of May, though on a year to year basis sales are down 0.8%. A more ominous report came from the Johnson Redbook survey, which said  sales in June are so far down 4.3% compared to May.

The 10 am Wholesale Trade report that inventories of U.S. wholesalers fell 1.4% in April, contributing to a 6.2% fall from April 2008.  In addition, the estimate for March was revised downward by 0.1%. 

Just before the release, analysts at IHS Global Insight said the inventory cycle will be the key to whether the economy grows this year. 

“Inventories took more than 2 percentage points out of first-quarter GDP growth, but inventory-sales ratios have barely begun to adjust, so we expect inventories to be a drag on growth again in the second quarter,” they wrote. “Only in the second half of the year, as the rate of inventory decline slows, will the inventory cycle become a plus for growth.”

With no more data to come out, it’s anyone’s guess where stocks will go, but any news from Treasury on the TARP repayment is sure to give markets some direction.

After Friday's better than expected jobs report we are seeing rates as high as they have been since November. Nothing has come out today that would move mortgage rates yet today. So far it is a quite morning. We will see how the government's debt auctions go this week to get a better direction of where rates are headed.

Futures for the S&P 500 are looking optimistic ahead of the Nonfarm Payrolls release at 8:30 am. Analysts are expecting the employment report to show the economy shed 520,000 jobs in May, a terrible number but, in fact, a slightly better reading than the 539,000 losses reported for April. The unemployment rate is expected to tick up 0.3 percentage points to 9.2%.

Analysts at DeutscheBank expect the headline figure to beat the consensus with a print of -500k, noting that government hiring could skew the number upwards.

“We think it is more important to focus on job losses in the private sector, rather than the total which includes government hiring, in assessing the health of the economy,” they wrote prior to the release.

Since the recession began in December 2007, 5.7 million jobs have vanished from the economy. The trend in the past two months has been slightly better than in the first quarter of the year, leading some economists to speak of stabilization in the labor market.

Even so, BMO’s Sal Guatieri notes that,“Another half-million net job losses would take the total in this recession to 6.3 million (or 4.6%), marking the worst labour market since the 1949 downturn.” Before the recession began, the unemployment rate was 4.5%.

Just as markets open an hour after the release, the Obama administration’s Christina Romer, who chairs  the Council of Economic Advisers, will speak on Bloomberg Television.

Then in the afternoon at 2:15, the Federal Reserve in Washington hosts a panel on financial markets and monetary policy. Vice Chairman Donald Kohn will be moderating the panel which includes San Francisco Fed President Janet Yellen, Boston Fed President Eric Rosengren, and IMF chief economist Olivier Blanchard.

The only other data release penned for Friday is Consumer Credit, at 3:00, which is expected to show credit falling by $7.0 in April, following a print of -$11.1 billion in March. 

Markets have been volatile Thursday morning as investors react to decent labor data, poor retail reports, and mixed speeches from central bank officials. Trading has been directionless after a higher open, and roughly 90 minutes into the session each major index is slightly higher on the day.

The S&P 500 is showing a 0.64% gain to 937, while the Dow is up 0.49% to 8718, and the Nasdaq stands 0.61% up to 1836.

The day began on a high note as the weekly Jobless Claims survey saw continuing claims fall for the first time since January. Initial claims also fell 4k to 621,000, but have been above the 600k threshold for 18 straight weeks now.

Revisions to the Q1 Productivity and Costs were also positive. Nonfarm productivity was revised up to +1.6% from +0.8%, and unit labor costs were revised lower to +3.0% from +3.3%. 

The reports allowed the market to open higher, despite comments from Cleveland’s regional Fed President Sandra Pianalto, who said economic recovery could be slower than expected.


"Once the recession ends, we may be tempted to hope that the economy will take off at a full gallop, but that is not likely to happen because of some long-standing imbalances within our economy," Pianalto said to the INVESTKentucky conference on Thursday.

She said a drive towards greater savings will hurt the prospect for a quick recovery, though in the long term increased savings could translate into a bigger pool for investments.

William Dudley, president of the New York Fed, also gave a speech before the opening bell defending the Fed’s flagship loan facility.

Defending the Term Asset Backed Securities Loan Facility (TALF), which is aimed at financing loans to small businesses, students, credit-card holders, and auto-buyers, Dudley said the facility needs to find a broader base of investors due to falling interest rates. 

“The broader the investor base, the greater the demand for the securities, the lower the yield levels, and the greater the improvement in credit availability,” Dudley said.

He added that while the TALF has been off to a slow start, the central bank has been “encouraged by the results so far.”

Ben Bernanke also spoke in the morning, but unlike his speech on fiscal imbalance yesterday, the Federal Reserve Chairman’s declined to speak on monetary policy or the economic outlook.