MARKET TRENDS: Summary for the Week Beginning July 27, 2015

The week ahead will start off with data on durable goods orders and core durable goods orders which indicate the level of business activities in the U.S. Aircraft orders, particularly in the commercial sector, have remained low, leading to the recent volatility in the durable goods orders. Rising demand, coupled with a supply constraint in the housing sector, drove home prices and the respective indices.

Pending home sales, scheduled for Wednesday, likely remained steady, with a recovering housing market. The FOMC meeting and the GDP growth rate data on Thursday will be the most telling. The economy is expected to expand in the second quarter of the year, reversing the first quarter contraction.

Durable Goods Orders & Core Durable Goods Orders (Mon): U.S. Department of Commerce is set to release the durable goods orders, which includes heavy and bulky goods including: trains, planes, and automobiles that can be used for a longer period of time. Durable goods orders likely jumped 3% in June, after a 2.2% decline in the previous month. The gain in durable goods orders could have been driven by higher demand in the commercial aircraft sector.

Durable goods orders have remained volatile recently, due to aircraft orders. Excluding transportation orders, i.e., core durable goods orders, a gauge of the level of business activities for U.S. manufacturers, likely increased 0.5% in June. A similar rise in core orders was reported in May on higher demand in the metal parts sector. The DOC will also release data for non-defense capital goods orders, excluding aircraft. This is a gauge of business spending plans, which is expected to have increased 0.4% in June after a 0.4% fall in May.

Services PMI (Tues): On Tuesday, the financial firm Markit will release its preliminary reading of Purchasing Managers Index for the services sector, which is expected to increase to 55.0 from 54.8 in June. The data is based on surveys of over 400 executives in private sector service companies. The surveys cover transportation and communication, financial intermediaries, business and personal services, computing & IT, hotels and restaurants.

CB Consumer Confidence (Tues): The Conference Board will release the Consumer Confidence Index for July on Tuesday. The consumer confidence probably came down in July, after reaching a three-month high in June. A strong labor market has kept consumer sentiment high in the recent past. The CB Consumer Confidence Index is expected to inch down to 100 in July from 101.4 in the previous month.

Pending Home Sales (Wed): The National Association of Realtors will report its pending home sales data, which measures the change in the number of homes under contract to be sold, but still awaiting the closing transaction. Pending home sales have likely improved by 1% after posting a 0.9% rise in May and a 3.4% rise in April. The recent pickup in the housing sector, with improving income levels and lower mortgage rates, induces optimism on the pending home sales number. Last week, the Association reported a strong rise in existing home sales, primarily driven by higher demand from first-time home buyers, while new home sales faltered.

Fed Interest Rate Decision (Wed): The next Federal Open Market Committee policy announcement is due on Wednesday. The Fed funds target rate range is expected to have maintained at 0.25%. This meeting would give some guidance on the chances of the first interest rate hike in a long time. The rate hike is expected to come in September with a strong labor market and an inflation rate near the Fed target.

Gross Domestic Product (Thurs): The U.S. economy likely rebounded in the second quarter after faltering in the first three months of the year. Thursday’s data may show the economy expanded at a much faster pace in the second quarter after a soft first quarter. Stronger consumer spending likely has pushed the GDP growth rate figure. The GDP is projected to have risen at a 2.6% annual rate in the second quarter, compared to a contraction of 0.2% annual rate in the first quarter.

Employment Cost Index (Fri): The U.S. Labor Department will publish the Employment Cost Index, the measure of pay growth momentum for the second quarter, on Friday. The Employment Cost Index likely grew 0.6% in the 2Q15 after registering a 0.7% increase in the previous month.

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