NAR Existing Home Sales (APR) (14:00 GMT; 10:00 EST)
NAR Existing Home Sales (MoM) (APR) (14:00 GMT; 10:00 EST)
How Will The Markets React?
Thursday?s Department of Commerce combo of new home sales and durable goods drew a bullish crowd, though theUS markets didn?t seem to fully capitalize on the news. Taking a closer look at the evolution of price action, things started off slow when the Durable Goods Orders report for April missed expectations with its headline print. Despite the modest miss though, the headline number printed its third consecutive rise, which ultimately supports the view that factory activity and business investment will rebound after two quarters of burning off excess inventories. Moving along, the government?s New Home Sales report for the same period provided the real market movement for the day. The report completely blew away expectations of a measly 0.2 percent pick up by printing an utterly surprising 16.2 percent surge in sales. Considering how beaten down the housing market is, this healthy boost - the biggest in 14 years - suggests the sector has certainly found a bottom and may even be on the upswing of a new cycle. However, if that were true, then the equities and yields wouldn?t have given up most of their gains and the dollar would have easily taken out resistance. Instead, investors were just as interested in the 10.9 percent drop in the average sales price as they were in the volume increase. It is not a stretch in linking the biggest contraction in housing prices in over 30 years to the pick impressive rebound in deals. Consequently, this indicator may prove to be a one-off on extraordinary circumstances rather than calling the turn in the housing market. Needless to say, traders and economists are left to await confirmation of either outcome. Support may come as soon as tomorrow with the NAR?s existing home sales report for April. A comparatively modest increase may be all that is needed to carry hope of a rebound in housing. If this be the case, all the markets could see big breakouts. Alternatively, a print near or below expectations will allow the holiday haze set in.
[B]Bonds - US 10-Year Treasury Note Futures
Yields, like the dollar and equities, responded quickly to this morning?s economic offerings. Heading into the open of US capital markets, yields were already supported by the OECD?s biannual Economic Outlook which suggested the Fed should hold off on a rate hike until early next year to help snuff out inflation that remains elevated around the globe. It was the New Home Sales report though that really got things in motion. The biggest jump in sales since 1993 was reason enough to drive T-note futures down. However, prices couldn?t reach 106-06 support that seems so near because of the drop in prices that accompanied the release. To truly support firm growth expectations (and play down the expected drop in inflation reads) tomorrow?s existing home sales report has to also outperform.
FX - EUR/USD
The EURUSD has steadily declined from its late April highs of 1.3680 as the US dollar has slowly garnered strength, though the pair has started to back off upon approaching the 1.3415 level. While the better than expected releases of Durable Goods (ex. Transportation) and New Home Sales gave the US dollar a decent boost, support at 1.3415 blocked substantial EURUSD declines once again. With the low market volumes associated with the pre-Memorial Day holiday, the release of NAR Existing Home Sales could set EURUSD for some very volatile price action. The figure is anticipated to ease back a very mild -0.1 percent after plunging -8.4 percent in the month prior, but given the surprise surge in New Home Sales, there are major upside risks to Friday?s release if realtors were just as aggressive as homebuilders in issuing perks and discounts in order to boost sales. If the markets see an especially hot Existing Home Sales figure, EURUSD could make a quick break lower without encountering much in the way of support once clearing 1.3415. On the other hand, major weakness could leave traders worried that the jump in New Home Sales was a one-off event, and that the woes of the housing sector will not be over for a while.
Equities - S&P 500 Index
US stocks fell for the third day in a row, led by utilities and tech shares, as durable goods reflected stronger capital spending and new homes sold at the fastest pace since 1970, ramping up speculation that the Fed will leave rates on hold throughout the year. However, the details of the housing report also showed a sharp decline in prices, signaling that the pick up in sales was largely a result of huge discounts and major perks, boding ill for the health of the sector. By the New York close, the S&P 500 was down 1percent - the sharpest drop since May 10 - to 1,507.51. Network Appliance was the biggest loser in the S&P and showed its biggest loss since 2002, plummeting 16 percent to $31.87 after sales missed estimates. Shares of CA Inc. showed the second largest decline, dropping 7.6 percent to $25.72 as the second-largest maker of software for mainframe computers posted an unexpected fourth-quarter loss.
On Friday, equity trade could continue to be a little dicey as low volumes ahead of Monday?s Memorial Day holiday could leave the S&P 500 either remarkably quiet or quite volatile. NAR Existing Home Sales will add to the mix, as the figure is anticipated to slow mildly in the month of April, bringing the number of homes sold down closer to the 6.12 million mark. However, if realtors issued similar perks on existing homes as builders did on new homes, we could actually see a surprisingly strong release which would further the market?s concern that the Fed will remain hawkish, possibly leading the S&P below 1,500.00. Now that the index has broken below a supporting trendline, bearish price action may be even more likely.