The EU summit surprised to the upside. Some constructive measures were agreed upon in the meeting that warmed the Street and also set in motion a large-scale exodus into risky bets. BMO Capital terms the agreement as a solid step in the right direction for Europe. Of the noteworthy measures, the ESM will be allowed to recapitalize banks directly once a new banking supervisor is in place. This is considered crucial for halting the vicious cycle that has intertwined sovereign and banking risks.
The senior creditor status for Spanish bailout debt will be waived, which is seen as a short term measure to ease pressure on Spanish bonds. The EU also agreed to a 120 billion euro stimulus package, while also clamoring for more flexibility in the usage of EFSF/ESM by countries with some degree of fiscal discipline.
The slowing economic momentum in the U.S. is now considered more due to fundamental issues than due to technical factors. Given the gravity of the issues at hand, U.S. GDP growth should trend below par performance. With at least half of the budgetary cuts and tax increases envisaged for next year likely to be implemented, the economy isn't expected to see any respite in the near to medium term. BMO Capital Markets expects the economy to return to above-potential growth only by the second half of 2013.
The U.S. housing market seems to have exorcised its demons. Last week, the Commerce Department said U.S. new home sales rose 7.6 percent month-over-month to a seasonally adjusted annual rate of 369,000 in May from 343,000 in April. Region-wise, new home sales were higher in the Northeast and South but fell in the Midwest and South.
Inventories of new homes as measured in terms of the months of supply fell to 4.7 months from 5 months in the previous month. The median price of a new home rose 5.6 percent year-over-year, although it fell 0.64 percent month-over-month to $234,500.
Additionally, the National Association of Realtors reported that its pending home sales index surged up 5.9 percent month-over-month in May. The index was up 13.3 percent from the year-ago period. Pending home sales rose in all four regions.
The results of the S&P Case-Shiller house price survey showed that the 20-city composite house price index rose 0.67 percent month-over-month in April and was down a less than expected 1.9 percent from a year ago. Prices increased relative to the previous month in 17 of the 20 cities surveyed.
The ISM-Chicago's manufacturing survey showed that its business barometer rose to 52.9 in June from 52.7 in May. The new orders index slipped 1 point to 51.9 and the order backlogs index receded 4 points to 42.2. Meanwhile, the employment index rose 3.4 points to 60.4 and the production index climbed 7 points to 57.
On the other hand, the Conference Board's consumer confidence survey showed that confidence declined by more than expected in June. The consumer confidence index fell 2.4 points to 62 in June. The expectations index declined by 5 points to a 7-month low of 72.3, while the present situation index rose 1.7 points to 46.6.
The results of the consumer sentiment survey by Reuters and the University of Michigan also showed that consumer sentiment fell 6 points to 73.2 in May, marking the lowest reading since December. The current economic conditions and the economic outlook index also slipped.
The Labor Department's monthly jobs report, the weekly jobless claims data, the ADP's private sector payrolls numbers and the results of the Institute for Supply Management's manufacturing and non-manufacturing surveys are among the closely watched reports of the unfolding week.
The Commerce Department's construction spending report and construction spending reports for April and announcements concerning the Treasury auctions of 3-year and 10-year notes and 30-year bonds round up the economic events of the week.
The non-farm payrolls report is expected to show a pick up in the pace of hiring relative to May. That said, a meaningful drop in the unemployment rate isn't likely to happen anytime soon. BMO Capital Markets believes that businesses are waiting for the resolution of the eurozone debt crisis and the brightening of global economic prospects. Additionally, the uncertainty surrounding the U.S. fiscal issues is preventing employers from going on a hiring spree.
Separate surveys by the Institute for Supply Management may show that the manufacturing and service sectors experienced a slowdown in the pace of expansion. The manufacturing sector is beginning to take a hit from the debt storm raging across the Atlantic and the slowdown in global growth. Meanwhile slowing job growth and receding consumer confidence is likely to have hit retail trade and related services even as the recent resurgence seen in the housing market gives a lift to industries tied to the housing sector.
The results of the manufacturing survey of the Institute for Supply Management, which are based on data compiled from purchasing and supply executives nationwide, are due out at 10 am ET. Economists expect the index to show a reading of 52 for June.
Economic activity expanded in the manufacturing sector in May, with the results of the national survey showing that purchasing managers' index coming in at 53.5, although down from 54.8 in April. Of the 18 industries surveye4d, 13 reported growth. While the new orders index rose 1.9 points to 60.1, the order backlogs index fell 2.5 points to 47. The production index slipped by 5.4 points to 55.6 and the employment index edged down 0.4 points to 56.9.
The Commerce Department's construction spending report to be released at 10 am ET is expected to show a 0.2 percent increase in May.
Construction spending rose 0.3 percent month-over-month in April, resulting in an annual increase of 6.8 percent. The monthly comparison showed that private construction spending climbed 1.2 percent, while public construction declined 1.4 percent.
Individual automakers are scheduled to release their monthly U.S. sales results for June. The data will reveal the unit sales of domestically produced cars and light duty trucks, including sports utility vehicles and mini-vans, during the month. Economists expect domestic vehicle sales of 13.9 million for June, up from 13.8 million last month.
The Commerce Department is due to release its report on factory goods orders for May at 10 am ET. Economists estimate a 0.1 percent increase in orders for factory goods.
The April report showed that factory goods orders fell 0.6 percent month-over-month. Meanwhile, durable goods orders, which make up the bulk of the factory goods orders, rose 1.1 percent month-over-month in May after declining by 0.2 percent in April. Excluding transportation orders, the order growth was merely 0.4 percent, which was below expectations.
That said, orders for machinery, computers, electrical equipment and transportation equipment all increased. Core orders, defined as non-defense capital goods order, excluding aircrafts, increased by 1.6 percent in May, while shipments of this category of goods edged up by 0.4 percent, reversing the 0.6 percent drop in April.
The markets are closed on Wednesday in observance of 'Independence Day.'
The ADP National Employment report, which sheds light on non-farm private employment, is scheduled to be released at 8:15 am ET. The report is usually released two days prior to the Labor Department's employment report. The consensus expectations are for an addition of 13,000 jobs by the sector in June following an addition of 133,000 jobs in May.
The Labor Department is due to release its customary jobless claims report for the week ended June 30th at 8:30 am ET. Economists expect claims to remain unchanged at 386,000 in the recent reporting week.
Jobless claims for the week ended June 23rd fell to 386,000 from the previous week's upwardly revised reading of 392,000. Claims remained above the 380,000 mark for the fifth straight week. The four-week moving average edged down to 386,750. Meanwhile, continuing claims for the week ended June 16th declined by 15,000 to 3.296 million.
The Institute for Supply Management is scheduled to release the results of its non-manufacturing survey at 10 am ET. The non-manufacturing index is likely to show a reading of 53 for June.
The non-manufacturing index edged up 0.2 points to 53.7 in May. The business activity index climbed 1 point to 55.6 and the new orders index rose 2 points to 55.5, while the order backlogs index remained flat at 53. Meanwhile, the employment index fell 3.4 points yet held above the '50' mark.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended June 29th at 11 am ET.
Crude oil inventories edged down by 0.1 million barrels in the week ended May 22nd to 387.2 million barrels. Inventories continued to remain above the upper limit of the average range.
Distillate inventories decreased by 2.3 million barrels and were below the lower limit of the average range. Meanwhile, gasoline stockpiles rose by 2.1 million barrels, yet remained in the lower limit of the average range. Refinery capacity utilization averaged 91.9 percent over the four weeks ended June 22nd compared to 91 percent over the previous four weeks.
The Labor Department is scheduled to release its monthly non-farm payroll report at 8:30 am ET. Economists expect non-farm payrolls for June to increase by 90,000, while the unemployment rate is expected to remain unchanged at 8.2 percent.
Job growth in the U.S. came in at an anemic rate in May sending the unemployment rate up slightly for the month. The economy added a net of just 69,000 new jobs in May, far lower than the 150,000 expected by most economists. Furthermore, the already week job creation numbers posted for April were revised down sharply to show a gain of just 77,000 positions, 38,000 fewer than the 115,000 initially reported.
by RTT Staff Writer
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