Report (Premium Edition) 07-19-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

LastCHG %CHGHIGHLOWTREND
Dow34687.86−0.86%−299.1735090.0134647.82Bull
S&P 5004327.15−0.75%−32.894375.094322.53Bull
Crude (WTI)69.689-2.43%-1.73971.65669.591Neutral
Gold1802.92-0.49%-8.861817.261801.66Neutral
10 Year1.255−3.01%−0.03901.291.25Strong Bear
Bitcoin/USD31273.15−1.03%−324.1031864.0531232.65Neutral
US Dollar Index92.9710.28%0.25993.03992.649Strong Bull
VIX20.038.56%1.5820.4619.27Bull

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have on real estate investment trusts’ (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials-2.80%-3.80%-1.80%13.50%-2.40%42.20%79.20%Bear
 Communication Services-1.90%1.30%3.70%18.00%2.10%65.90%53.80%Bull
 Consumer Cyclical-3.10%2.00%-1.30%12.90%-3.00%85.30%162.80%Neutral
 Consumer Defensive0.80%1.70%1.60%7.10%-8.80%45.90%46.60%Bull
 Energy-8.10%-12.30%2.90%34.40%18.50%-26.10%-15.60%Bear
 Financial Services-1.70%-3.00%1.60%23.00%7.00%37.10%102.50%Bull
 Healthcare-0.70%3.10%5.20%12.10%-3.80%57.70%99.10%Bear
 Industrials-2.10%-1.00%-0.40%14.60%-1.40%46.30%89.20%Bear
 Real Estate0.20%2.30%10.30%25.60%9.70%44.40%43.30%Bull
 Technology-1.20%5.40%4.20%14.10%-1.90%120.00%281.80%Bull
 Utilities2.30%1.70%-0.80%7.10%-8.90%35.70%49.70%Bull

Key Drivers for the Week of July 19, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • ECB’s Lagarde expected to strengthen dovish guidance amid new strategy
  • Earnings highlight U.S. calendar, spanning key sectors of the economy
  • U.S. data includes NIFB, housing starts, existing home sales, jobless claims
  • Canada reports retail sales, Teranet/National Bank HPI
  • Olympics July 23 – August 8, without spectators
  • Japan national CPI, trade BoJ minutes; holidays Thursday, Friday
  • Bank Indonesia seen steady; Korea PPI; Malaysia CPI; HK unemployment
  • European preliminary PMIs, consumer confidence, and current account 
  • UK preliminary PMIs, CBI industrial trends, and retail sales

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: Inflation Spikes

On July 19, 2021

The dollar and yen have been attracting safe-haven demand amid a backdrop of sinking equity markets. The biggest decliners, not surprisingly, have been the dollar bloc and other cyclical currencies, including many developing-world currencies. 

The sharp rise in Covid D cases across Asia has been the principal spoiler of sentiment today, with many nations in this region seeing what is by far their worst outbreaks since the pandemic started. 

The Delta variant is driving the spread. Low vaccination rates across the region mean lockdown measures are being imposed in many places. Other regions, including come EU nations, are also seeing another wave take hold.  

However, we don’t think the Covid D variant poses a huge threat to the economy.  

Inflation was all the talk last week and will remain a focal point near term—this week. The richening in core bond yields even in the face of hotter than expected price pressures, especially in the U.S., reflects the confidence that the Fed, ECB, and BoJ will maintain their accommodative postures, as well as in the “transitory” nature of the surge in prices.

The year-over-year inflation rate is 5.39% and is expected to keep rising per the Fed.

Treasury Secretary Janet Yellen said she expects “several more months of rapid inflation” that will eventually subside over the “medium term.” They argue that much of the rise in inflation is due to the opening of the economy and the supply chain issues.  

Last Wednesday, Jay Powell, Federal Reserve Chair, tried to ease inflation fears in Congress. “I know people are very worried about inflation. We hear that loud and clear from everybody.. it is really going through the economy and through every business,” he said. 

Powell reminded lawmakers that he still believes inflation will be transitory but added that the Fed is ready to act quickly to stave off a sustained spike in inflation.

However, I beg to differ and think we will see a continual rise in inflation as waves rather than a straight trend line. We may see a peak this summer as both hedge fund managers Ray Dalio and Jeff Gundlach are predicting, but I think we are heading toward a 1970’s runaway inflation situation.

Inflation will be the buzzword this week as Congress sets to pass two key new spending bills.

This week, a laser focus will be on passing the “infrastructure bill” because the Senate Budget Committee had reached an agreement on a $3.5 trillion spending plan. Senate Majority Leader Chuck Schumer has made this his priory and planning to use “reconciliation” to pass the bill.

Republicans are unlikely to support it and likely to put up a significant fight. Sen. Lindsey Graham has said Republicans would take a page from the Democrats in Texas and leave the Senate without a quorum if they try to pass the bill.

Graham argued that the bill “got nothing to do with infrastructure” and is “a tax and spend dream of the socialist left.”

In addition to the infrastructure bill, there is the raising of the debt ceiling which needs to be done by the first week in August. I think this could turn into a major fight, but both sides do not appear to want a government shutdown.

So what does this mean?

Due to last week’s CPI and rising inflation numbers, I think there is a less than 50/50 chance of Congress passing any new spending. Sen. Joe Manchin may broker a $900 trillion deal, which is less than a third of what the Democrats want.

In any case will see an increase in government spending of historical levels, leading to massive long-term debt and currency devaluation. Passage of more spending will only increase the rate of rising for inflation.

For those that don’t know or remember, the Fed was unable to wrangle double-digit inflation of the 1970s but eventually got it under control by raising interest rates to 20% in 1981. 

Earnings will be a major focus given a light calendar otherwise. After banks kicked off the Q2 season last week with mixed results, this week’s slate includes airlines, tech, and drug companies. 

There is a relatively high bar given reopenings. Netflix highlights Tuesday, J&J and Coke are due Wednesday, with Intel and AT&T Thursday, while AmEx and Honeywell complete action on Friday. 

Today’s data has just the July NAHB housing market index, expected unchanged at 81. Later in the week, housing starts, new home sales, and existing home sales are on tap, along with leading indicators. Fedspeak goes dark ahead of the July 27-28 FOMC.

NORTH AMERICA

Earnings will dominate an otherwise thin U.S. calendar this week. However, the markets will continue to digest the dovish message from Fed Chair Powell’s testimony last week. Bond yields extended lower in spite of ostensibly bearish data on CPI and retail sales, with the 10-year closing at 1.29% and the bond at 1.919%.

Wall Street had a tougher time, finishing with losses, though the major averages remain just shy of record levels from July 12. As for earnings, after banks kicked off the Q2 season last week, there is a very heavy slate of announcements ahead that will span most sectors of the economy. As reflected in the somewhat bearish reactions to various earnings beats last week, there is a high bar to meet. The data slate is thin with housing reports, with a 20-year bond and 10-year TIPS auctions on the Treasury’s auction schedule. Fedspeak goes dark in the self-imposed blackout period ahead of the July 27-28 FOMC.

Highlights of the earnings slate (see the full calendar below) include IBM (Monday); Netflix, UBS, Chipotle, Synchrony Financial, Halliburton, and United Airlines (Tuesday); J&J, Coca-Cola, and Verizon (Wednesday); Intel, AT&T, Union Pacific, Twitter, Freeport-McMoRan, Dow, and American Airlines (Thursday); Honeywell, American Express, Kimberly-Clark, and Schlumberger (Friday).

The July NAHB (Monday) kicks off the data slate. The index fell -2 points to 81 in June, the lowest since last August, with the report noting supply constraints in materials, labor, and lots posing headwinds, along with declining affordability. June Housing starts (Tuesday) is expected to climb to a 1.620 mln pace after rising 3.6% to 1.572 mln in May. Permits are expected to bounce to 1.700 mln following the -2.9% drop to 1.683 mln in May. And existing-home sales (Thursday) are projected to hold steady at the 5.80 mln clip from May. Existing sales have been in decline since February, but in large part due to low inventories. Initial jobless claims (Thursday) will also be monitored as the date coincides with the BLS survey week. We expect a -5k decline to 355k for the week ended July 17, which would mark another cycle low.

Earnings: Monday – IBM, Prologis, PPG, J.B. Hunt, Crown Holdings, Steel Dynamics Tuesday – Netflix, Philip Morris, Intuitive Surgical, Lockheed Martin, Canadian National Railway, HCA Healthcare, UBS, Chipotle, Travelers, Synchrony Financial, Interactive Brokers, Dover Corp., Teradyne, KeyCorp, Halliburton, Citizens Financial, Ally Financial, KB Financial, Omnicom, United Airlines, Neogen Wednesday – J&J, Coca-Cola, Verizon, Novartis, SAP, Texas Instruments, Anthem, Criwn Castle, CSX, Kinder Morgan, Discover Financial, Nasdaq, Equifax, Rogers Communications, Northern Trust, Baker Hughes, Seagate, M&T Bank, Whirlpool, Graco Thursday – Intel, Abbott Labs, AT&T, Danaher, Union Pacific, Snap, ABB, Capital One, Marsh & McLennan, Edwards Lifesciences, Twitter, Newmont, Freeport-McMoRan, Dow, American Electric Power, SVB Financial, D.R. Horton, Nucor, Wet Pharma, Fifth Third Bancorp, VeriSign, Tractor Supply, First Energy, Domino’s Pizza, Pool Corp., Genuine Parts, Cenovus Energy, Celanese, Quest Diagnostics, Citrix, American Airlines, Allegion, Snap-On, Teck Resources, Boston Beer, Cleveland-Cliffs, Carlisle Companies Friday – Honeywell, NextEra Energy, American Express, Equinor, Roper Technologies, Kimberly-Clark, Schlumberger, Regions Financial

Canada’s thin calendar is highlighted by May retail sales (Friday). Sales are seen falling -3.2% in May after the -5.7% drop in April while the ex-autos aggregate retreats -4.0% following the -7.0% plunge in April. Restrictions related to the third wave of virus infections drove the drop in April sales and are expected to sink sales in May. The Teranet/National Bank HPI for June is due on Tuesday. The new housing price index is due Wednesday.

There is nothing scheduled from the Bank of Canada this week. At the announcement last week, the bank reduced QE to C$2.0 bln per week from the previous C$3.0 bln, matching widespread expectations. The policy rate was held steady at 0.25%, also as expected. Forward guidance remained in place and identical to the June 9 announcement, with the Bank committed to holding the current rate-setting until sometime in the second half of 2022. The spike in inflation continues to be viewed as “transitory,” with total CPI seen above 3% through 2H of this year, easing towards 2% in 2022. But while the factors lifting CPI are “transitory…their persistence and magnitude are uncertain and will be monitored closely.” The announcement was consistent with our base case scenario for a further reduction in QE to C$1.0 bln by the end of this year, perhaps as soon as the September announcement.

ASIA

The focus will remain on Covid in the region, with the Delta variant once again adding to regional and global worries. Meanwhile, there have also been reports of suppliers in countries such as Malaysia, Thailand, and Vietnam falling behind on production due to Covid shutdowns. Also, supply chain issues have been noted in Japan as parts of the country, including Tokyo, have been under emergency measures, and they have been extended through the end of the Olympics, which will run from July 23 – August 8. Concurrently, South Korea case numbers have climbed to record highs. For data, the light calendar includes inflation reports and trade numbers. In Japan, national June CPI is due, along with the June trade report. The country will be closed Thursday for Marine Day and Friday for Health-Sports Day. For central banks, Bank Indonesia meets and is expected to keep rates steady at 3.50%. The Bank had cut its 7-day reverse repo rate by 150 basis points since 2020, though despite the Covid outbreak in the country, further easing is not expected due to rupiah weakness.

Japan’s June national CPI (Tuesday) should rise overall to 0.1% y/y from -0.1% previously. This will be the first increase since August 2020. The core reading bounced to a 0.1% y/y rate in May, the first increase here since March 2020, and it is expected to hold at that rate in June. The June trade report (Wednesday) is forecast to see the previous JPY -187.1 bln deficit flip to a JPY 250.0 bln surplus amid ongoing strength in y/y exports and imports, which climbed to 49.6% y/y and 27.9% y/y in May. The BoJ will release the minutes from June 15-16 MPM (Wednesday). At that meeting, the Bank extended its Covid emergency programs for businesses by six months. Japan will be closed Thursday for Marine Day and Friday for Health-Sports Day. As noted above, the Olympics will begin on Friday. It will be a quiet set of games no spectators allowed.

Elsewhere, South Korea June PPI (Wednesday) is expected to accelerate to a 6.6% y/y pace from 6.4%. Pressures have been on the rise since the end of 2020 when the 12-month pace bounced into positive territory, breaking a string of nine months in contraction. A 6.6% y/y pace would be the fastest since August 2011. In Taiwan, June export orders (Tuesday) likely slowed slightly to a 30.0% y/y pace from 34.5% previously. The pace has been slowing since February, versus the 49.3% y/y pace in January and the headwinds from bottlenecks and supply chain disruptions are likely slowed activity further. June unemployment (Thursday) is expected to dip to 4.0% from 4.15% in May, which was the highest since late 2013. It was at 3.72% at the start of 2020 and the pandemic. June industrial output is estimated to have slipped to a 10.0% y/y rate from 16.1% previously. Hong Kong unemployment (Tuesday) is penciled in at an unchanged 6.0%. It’s fallen from 7.2% in February. Before the pandemic, it was at 3.7% in February 2020. And June CPI (Thursday) should rise to 1.2% y/y from 1.0%. It’s been picking up since February.

Thailand’s June trade (Wednesday) likely saw the surplus rise to $2.8 bln from $0.8 bln. Indonesia’s Bank Indonesia meets (Thursday) and is expected to keep its 7-day reverse repo rate steady at 3.50%. The Bank has maintained an easing course since a 25 bp cut in July 2019, but it picked up the pace in mid-2019, and then again in February 2020 when Covid hit. Since the quarter-point easing in February, the rate has been trimmed six times for a total of 150 bps to the current setting. Despite the Covid outbreak in the country, further easing is not expected due to rupiah weakness. Malaysia June CPI (Friday) should tick up to 4.5% y/y from 4.4% in May, and 4.7% in April. Singapore June CPI (Friday) is penciled in rising to 2.5% y/y from 2.4% previously. This would be the hottest rate since the 2.6% clip from November 2013.

EUROPE

Eurozone: the ECB has revealed its new strategy and virus developments highlight that the pandemic is not over. Against that background, it seems President Lagarde is set to strengthen the dovish tone of the forward guidance at the upcoming July 22 council meeting. In our view that doesn’t mean that the central bank isn’t slowly preparing for tapering measures. But even if there are no setbacks and the ECB really starts to scale back monthly asset purchase targets and phases out PEPP as planned, monetary policy will remain extremely accommodative and rate hikes won’t be on the agenda for a long time. A strengthened forward guidance than would set the stage for a scaling back of purchase levels, which is still to come at the September meeting, with the next set of forecasts. The decision on PEPP meanwhile may not be taken until December and will likely come with a strengthening of other asset purchase programs, which may not offer the same flexibility on the distribution of purchases, but still leaves the central bank with room to step up support again if necessary.

Data releases are pretty thin on the ground, but do include preliminary PMI reports (Friday) for July. We expect manufacturing sentiment in particularly to correct again, as companies struggle with capacity constraints and staff shortages on top of supply chain problems. The Eurozone figure should dip to 62.3 (median 63.9) from 63.4 in June. But the reading would still point to ongoing and very strong growth, even if it would signal a deceleration in the pace of expansion. The services PMI meanwhile is expected to lift to 59.3 (median 59.5) from 58.3 as restrictions continue to be lifted, which would leave the composite at 59.7 (median 60.0), up from 59.5 in June. There are some downside risks, however, as infection numbers continue to rise across much of the continent.

The data calendar also has Eurozone current account data for May as well as national confidence data and the Eurozone preliminary consumer confidence reading.

U.K.: Sterling markets will be scrutinising incoming UK data after a batch of hawkish-leaning signals from BoE MPC policymakers last week saw Gilt yields and the pound rise. The calendar this week will be highlighted by the release of the preliminary July manufacturing and services PMI surveys (Friday), which we expect to show an economy continuing to expand at a robust rate, near series records in PMI data. The UK composite PMI reading is expected at 62.0, down fractionally from June’s 62.2 reading. This would follow a 13-year high in the UK’s June CPI reading, of 2.5% y/y, and a robust June labour market report showing employment levels to have already surpassed pre-pandemic levels in some regions of the UK.

With regard to BoE monetary policy, the upcoming early-August Monetary Policy Committee meeting will be regarded as a ‘live’ one, not in the sense that a hike in the repo rate is possible, but in the sense that QE tapering is. This is especially the case as this month’s meeting coincides with the release of the quarterly Monetary Policy review, which is likely to see the central bank lift projections for both growth and inflation. MPC members Saunders and Ramsden look react to act on QE, though Governor Bailey and the remaining members at the nine-person committee are likely to hold the dovish line for now. The Delta variant is driving a sharp acceleration in new Covid cases in the UK and across many regions around the world, although the highly vaccinated adult population in Britain has largely, but not entirely, broken the link with serious illness and mortality. The BoE has also previously signaled a preference to wait until the government pandemic wage support measures finished, at the end of September, before committing to policy decisions, wanting to wait to see hour the labour market fares on the other side of this hurdle.

One thing to note, as the newly hawkish MPC member Saunders stressed last week, is that the BoE is not pursuing an average inflation targeting policy rubric similar to that of the Fed, suggesting that the UK central bank will have a more pre-emptive emphasis when it comes to tightening. The RBNZ blind-sided markets last week by announcing the termination of its main QE program, and it is well within the realms of possibility that the BoE will follow suit.

Switzerland: The calendar this week is quiet, highlighted only by June trade data (Tuesday).

The third full week of July has a light calendar, dominated by the early June housing reports. Housing starts and permits are both expected to climb modestly, back toward their 15-year highs marked in Q1. We expect existing home sales to be steady in June at a solid rate that still lies well below the 14-year high seen in October. The median sales price faces limited upside potential given the climb to three consecutive all-time highs. The leading economic index should post another hefty gain in June, while initial and continuing claims continue to tighten.

Week of July 19

Complete Calendar: Click here to view the complete calendar of all the events.

The third full week of July has a light calendar, dominated by the early June housing reports. Housing starts and permits are both expected to climb modestly, back toward their 15-year highs marked in Q1.  We expect existing home sales to be steady in June at a solid rate that still lies well below the 14-year high seen in October. The median sales price faces limited upside potential given the climb to three consecutive all-time highs. The leading economic index should post another hefty gain in June, while initial and continuing claims continue to tighten.

Week of July 19

The solid round of retail sales data for Q2, with a surprising sales bounce in June after downward May revisions, suggests a solid 10.5% Q2 growth clip for real consumption, after the hefty 11.4% Q1 pace, with a lingering boost from Q1 stimulus checks and vaccines. We remain comfortable with our much lower 7.3% Q2 GDP growth forecast, as inventories liquidated through Q2 at an estimated -$88 bln pace to leave net liquidation in six of the last seven quarters. Output is capacity constrained with growth in the 7% area, while the surge in U.S. aggregate demand is being fed by inventory unwinds and soaring imports. Empty shelves have translated to soaring prices, and it’s noteworthy that a big July Michigan sentiment drop was accompanied by a surge in the 1-year inflation gauge to a new 13-year high of 4.8%.

The Michigan inflation expectations pop followed previously reported robust gains in the June inflation reports for CPI, PPI, and trade prices. Rising prices have left the Fed on the defensive, and Chair Powell seemed prone to avoid reference to “transitory” inflation pressures in his Wednesday testimony, perhaps fearing that the term makes the Fed seem excessively dismissive of inflation risks. It does still remain likely that big price gains related to supply chain disruptions and shortages through the first half of 2021 will at least partly be reversed into 2022, which will provide relief for monthly inflation gains just as the y/y metrics trend lower with easier comparisons. The Fed remains committed to this assumption, though if this process is slow, inflation expectations may permanently ratchet higher.

We now assume Q4/Q4 2021 PCE chain price gains of 4.0% for the headline and 3.6% for the core, versus respective FOMC central tendencies of 3.1%-3.5%, and 2.9%-3.1%. The Fed will likely need to boost its inflation estimates further at the September 21-22 FOMC meeting. The June estimates will remain in place at the July 27-28 meeting however, allowing the Fed further time to assess risks while it again refrains from providing a timeline for a tapering in QE.

Housing Starts: 1.620 mln

Housing starts are expected to climb to a 1.620 mln pace from 1.572 mln in May and 1.517 mln in April, versus a 15-year high of 1.725 mln in March. Permits are expected to improve to 1.700 mln from 1.683 mln in May, versus a 15-year high of 1.883 mln in January. We saw a new 15-year high for new home sales in March, and prior 14-year highs for pending and existing home sales in 2020. We saw a 12-year high for the MBA purchase index in mid-January before a pull-back in these figures to multiple new 1-year lows in May and June, as lean inventories have crimped sales while boosting prices. Before the pandemic, permits were already following a solid growth path that began in Q2 of 2019, fueled by low mortgage rates, and this strength has been exacerbated by the migration of families to suburbs. We expect a 1.570 mln average for starts in Q2, another new high following new recent highs of 1.599 mln in Q1 and 1.575 mln in Q4. We expect a 1.705 mln average for permits in Q2 that falls short of the 1.788 mln average in Q1.

Initial Jobless Claims: 355k

Initial jobless claims are expected to fall -5k to a 355k new cycle-low in the BLS survey week, after a -26k decrease to a 360k prior cycle-low last week from 386k. Before the mid-June back-tracking for claims, we had seen a steep rate of decline over a 6-week stretch to prior new cycle-lows. Claims are expected to average 356k in July, after averages of 393k in June, 428k in May, and 582k in April. The July BLS survey week reading will likely undershoot recent survey week readings of 418k in June, 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 600k July payroll rise, following an 850k bounce in June.

Continuing claims fell by -126k to 3,241k in the week of July 3, following an upwardly revised 3,367k figure. We expect continuing claims to fall -36k to 3,205k for the week ending July 10. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. Continuing claims are poised to fall about -240k between the June and July BLS survey weeks, after drops of -199k in June, -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Existing Home Sales: 5.800 mln

We expect existing home sales to be steady from 5.800 mln in May, versus a 14-year high of 6.860 mln in October. Pending home sales jumped 8.0% in May, after a -4.4% April dip. Though the assumed gains for the June housing reports would be encouraging, the recovery in all the housing measures has stalled in Q2 as the sector faces a wide array of capacity constraints that are driving prices higher and capping sales. The MBA purchase index fell -5.1% in May before a further -2.0% drop in June and a -4% decline thus far in July. The months’ supply of homes posted a 5-month string of new all-time lows through January to a particularly tight 1.9, before rising to a still-lean 2.5 by May. The median sales price is pegged at $350,000 in June, hence slightly trimming a three-month string of new all-time highs culminating in a $350,300 figure in May. We expect a dip in the y/y median price gain to 18.9% from a record-large 23.6% in May. In Q1, we saw an average sales pace of 6.303 mln, after a 6.657 mln rate in Q4, and we expect a slower 5.817 mln pace in Q2.

Leading Indicators: 1.0%

The leading economic index likely rose 1.0% in June, led by continued strength in claims, permits and ISM orders data, after big stimulus-fueled gains of 1.3% in both May and April, and 1.4% in March, but a weather-depressed flat February rate. The index continues to reverse the huge 2020 pandemic drops of -6.3% in April and -7.5% in March. We expect gains across most components in June.

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