Treasury Auctions, Pending Home Sales, FOMC Minutes and Fed Speak

The Dow closed last Thursday at an 18-month high, and with equity investors now able to react to Friday’s nonfarm payrolls report, the market should open sharply higher this morning.

The economy added 162k jobs last month, the biggest one-month gain in exactly three years. READ MORE

One hour before the opening bell, Dow futures are up 41 points to 10,901 and S&P 500 futures are up 4.50 points to 1,178.25. Also, NYMEX crude oil futures are 60 cents higher to $85.47 per barrel and Gold is up $2.00 to $1,128.

The week ahead is relatively slow for data but there are plenty of events that might offer the markets new insight.  Monday is an exception with the ISM Non-Manufacturing Index and the Pending Home Sales Index each hitting the headlines this morning.

Key Events This Week:

Monday:

10:00 — Investors are optimistic that the ISM Non-Manufacturing Index will move up in March, following the footsteps of its cousin manufacturing survey last week, which climbed beyond expectations to 59.6, marking the highest reading since July 2004. Economists said the index reaffirmed broad growth in the economy and dented the expectations of those expecting a W-shaped recover. 

Today’s index, which looks at the services, financial, and construction industries, covers more than the manufacturing index but is less influential. The consensus among economists is for the survey to move up one point to 54.0 in March, after rising 2.5 points in March. With the unemployment numbers already being released last week, investors may not give this report as much attention as usual, though with few reports out this week there’s little else to look at.

“Freight activity continued to move up in February and early March, while demand for transport services in general seemed to be improving,” said economists at IHS Global Insight. “Financial markets rebounded, and private service sector labor markets reported modest improvements in March, suggesting the employment index will still land just shy of the 50 mark.”

10:00 — The Pending Home Sales Index dropped by 7.6% in January on broad-based declines including a 13.2% drop in the West. The National Associations of Realtors, who issue the report,  blamed “severe and prolonged winter weather” on the report and predicted more declines in February for similar reasons. According to economists, the problems aren’t as severe this month: they expect a 1.0% decline. 

Treasury Auctions:

11:30 — 3-Month Bills

11:30 — 6-Month Bills

1:00 — 10-Year TIPS

Tuesday:

1:00 — Narayana Kockerlakota, president of the Minneapolis Fed, speaks to the Minnesota Chamber of Commerce in Bloomington, Minn.

2:00 — The FOMC Minutes from the last central bank monetary policy meeting should help Fed-watchers understand some recent language choices and, hopefully, give some idea of how long the emergency-low interest rates will remain in place. 

Economists from Nomura Global Economics said the minutes could answer three key questions.

First, has the committee upgraded its assessment of current economic conditions? The statement had a more positive take on these but was more negative on housing. Many analysts argued that the changes amounted to a net positive. In our view, the minutes are likely to make clear that recent data have been broadly in line with the FOMC's forecasts. 

Second, why did the committee reintroduce the phrase ‘employ its policy tools as necessary to promote economic recovery’?– its version of ‘whatever it takes’ – which had been dropped in December? We think many members may be concerned about the Fed's pullback from the MBS market given the fragile state of the housing recovery. Indeed, we think the minutes might suggest that, at least for this year, the probability of more MBS purchases is greater than the probability of sales. 

Third, what is the status of the ‘extended period’ language? Hawkish members of the committee clearly do not like it, but mainstream members (and the dovish wing) seem comfortable leaving it in place. As with the January minutes, we think this release will contain relatively little discussion about a major language change — despite significant media speculation in the run-up to the meeting.”

Treasury Auctions:

• 11:30 — 4-Week Bills
• 11:30 — 52-Week Bills
• 1:00 — 3-Year Notes

Wednesday:

2:00 — Tom Hoenig, president of the Kansas City Fed, speaks to the Denver branch board of directors meeting in Santa Fe, New Mexico.

9:00 — The Financial Crisis Inquiry Commission opens a 3-day public hearing to examine subprime lending, asset securitization, and the government sponsored enterprises. The panel will hear from several distinguished guests including former Chairman of the Federal Reserve Alan Greenspan, former Fannie Mae CEO Daniel Mudd, and former OFHEO director James Lockhard. 

1:30 — Federal Reserve Chairman Ben Bernanke speaks on “Economic Challenges: Past, Present and Future” before a Dallas Regional Chamber of Commerce luncheon

3:00 — Consumer Credit unexpectedly increased by $5 billion in January, the first advance in almost a year, but the 11-month streak is expected to resume in February.  The previous report saw credit card debt fall by $1.7 billion, but non-revolving credit jumped by $6.6 billion to make for a net gain overall. 

Economists from Nomura note that the gains in January were “entirely the result of higher student loan borrowing, which increased by more than $10 billion during the month.” With that likely to reverse in February, consumer credit is likely to hunch back into negative territory.

Treasury Auctions:

• 1:00 — 10-Year Notes

Thursday:

8:30 — Initial Jobless Claims have fallen in the past three weeks to their lowest levels in about a year-and-a-half. To begin April the report is expected to slide another 3k to 436k. The four-week average in March was 447k, down from 468k in February and 476k in January. Economists point out that a sustained trend below 450k is indicative of job growth in the economy.

“We expect claims to continue their retreat in this week's report,” said economists from Nomura. “The total number of jobless benefit recipients — continuing claims plus the emergency and extended benefit programs — appears to be stable at about 10.7 million (data for the emergency programs are not seasonally adjusted, so it is impossible to calculate a precise figure).”

12:45 — Narayana Kockerlakota, president of the Minneapolis Fed, speaks to the Business Leaders Luncheon in Helena, Montana.

Treasury Auctions:

• 1:00 — 30-Year Bonds

Friday:

10:00 — Wholesale Trade inventories fell 0.2% in January, subtracting from a 1% reduction in December. By contrast, sales moved up 1.3%, sending the ratio of inventories to sales to an all-time record low of 1.10  a new record low. Predictions for February were not available for the weekly schedule but will be in Friday’s day-ahead.

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