Report (Premium Edition) Updated 06-14-2021

Key Market Trends

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.

S&P 500 Sector Trends

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.

Key Drivers for the Week of June 14, 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.

• Bonds rallied as Fed tapering fears eased, ECB maintained status quo
• FOMC expected to maintain accommodative stance while starting taper talk
• BoJ expected to leave policy on hold, may extend covid aid program
• Taiwan and Indonesia seen keeping rates unchanged at 1.125% and 3.50%
• Australia: RBA minutes, Governor Lowe speech, employment data; NZ GDP 
• U.S. data includes retail sales, production, PMIs, and housing starts
• CPI highlights Canada’s slate, along with housing starts, existing home sales
• Eurozone CPI, production, current account; German HICP, PPI due
• UK CPI, retail sales, BoE lending data and money supply awaited
• SNB expected to keep policy steady as inflation remains below target

Week Ahead: No Fear of the Fed

On June 14, 2021

The dollar has remained firm versus most other currencies, trading in a typically narrow early-week range within a whisker of one-month highs by the measure of the DXY narrow trade-weighted index. This has been concurrent with the 10-year U.S. Treasury yield trading a few basis points above last week’s three-month lows under 1.430%.

However, there has been a steady decline in the USD while equities have climbed to new heights. The 1 day chart above shows the USD compared to the S&P 500. We think the trend will continue and is only consolidating right now.

The benchmark yield, to recap, dropped by nearly 15 bp last week, despite May CPI out of the U.S. coming in hotter than expected at a 13-year high of 5.0% y/y. The price action essentially marked a capitulation of laggard bond bears in the face of the prevailing, Fed touted dominant view that inflation will be transitory, due to y/y statistical base effects and reopening bottlenecks, where a resurgence in demand has been exposing supply bottlenecks.

This backdrop intensifies the focus of markets on this week’s FOMC announcement, on Wednesday. This backdrop intensifies the focus of markets on this week’s FOMC announcement, on Wednesday. We expect the Fed and Chair Powell will stress that there will be no imminent policy shifts. Rather a wait-and-see stance should prevail for some time into the future since the criteria of “substantial further progress” on the goals has not been met, and as the data have been too noisy for officials to get a clear view. 

BEAR Alert: We believe there could be a risk of another shutdown due to Covid Variant Delta. This variant is causing major problems in India and now spreading fast. This weekend we found out that China is shutting areas down again to try to contain it. The good news is that the Pfizer vaccine protects against it.

Many “Red” areas like Florida and Texas are unlikely to shut down again, but we think Democrat-controlled areas like California and NY could shut down. I live in Florida and we have been “back to business” for several months. Everyone I spoke to here was against a shutdown. The media will likely hype the fear and we will see some kind of dip in the markets. It is too early to know yet if the variant will be a serious threat.

A busy data slate is also of interest stateside, but the FOMC takes center stage. The BoJ is also on tap where markets will be alert for an expansion of the Covid aid program.

Also expected on hold are SNB, Bank Indonesia, Bank of Taiwan. The busy Chinese slate should show some slowing in the robust recovery. In Europe, the ECB is out of the way with its steady stance and and ongoing commitment to “significantly higher” PEPP purchases, while data is largely backward looking and will not impact the policy outlook.

NORTH AMERICA

The FOMC headlines in the U.S. this week with the meeting on June 15-16. No changes are expected to the 0%-0.25% rate band or the $120 bln in monthly QE purchases. But we do believe Chair Powell will acknowledge that taper talks have begun, though action is still a ways off since the recovery in the labor market is still far from complete. Along with the FOMC, there also is a plethora of key data including retail sales, production, manufacturing PMIs, and housing starts. They are likely to reflect the diverging impacts of the unwinding of pop from stimulus payments, constrained inventories, supply chain disruptions, along with rising commodity/input price pressures. The data look to remain very noisy, and the results are likely to be too mixed to provide clear direction on the economy.

The plunge in Treasury yields last week to levels not seen in late February, early March clearly indicated that there is no fear of the Fed, and that investors have bought into the “transitory” view of inflation. And while we believe the robust recovery, the improvement in the labor market, and the acceleration in inflation will get officials to start talking about tapering, we expect Chair Powell will downplay it, suggesting action is not immanent as the “substantial further progress” criteria has yet to be met.

Of interest, this meeting will include the new quarterly forecasts (SEP) where we expect to see modest revisions in growth, inflation, and unemployment to reflect the strength in the recovery thanks to the massive monetary and fiscal stimulus, along with the increased vaccinations and the reopenings in the economy. The new forecasts will likely show a narrowing in the official GDP forecasts around the path estimated in March after passage of the last stimulus package, alongside boosts in the low-end jobless rate estimates to account for a diminished downtrend, and massive boosts in the PCE chain price estimates.

For GDP, we assume the Fed’s central tendency will remain at 5.8%-6.6%, versus our own 6.3% estimate, though the full range should be narrowed. We expect an increase in the 2021 jobless rate central tendency to 4.5%-4.8% from 4.2%-4.7%, versus our own 4.6% estimate. Upward revisions are also expected in the PCE chain price central tendencies to 3.0%-3.2% from 2.2%-2.4% for the headline and to 2.6%-2.9% from 2.0%-2.3% for the core, versus our own respective estimates of 3.4% and 3.1%. And importantly, we expect the Fed to mostly repeat their funds rate estimates from March, though with boosts to high-end estimates, and a hike in the 2023 median to 0.4% from 0.1%.

The sales, production, manufacturing PMIs, and housing starts reports should track the ongoing recovery, including its increasingly bumpy nature. May retail sales (Tuesday) are expected to decline after the soft April report, but much of the weakness is likely due to a further unwind from the March pop that was driven by stimulus checks. Constrained inventories are also expected to weigh on vehicle sales. We are projecting a -0.6% drop in total sales and a -0.1% slip ex-autos. May industrial production (Tuesday) is forecast to rise 0.2% in May, after the 0.5% April headline increase.

The Empire State (Tuesday) and Philly Fed (Thursday) PMIs should continue to gyrate around strong levels that track the boom in manufacturing as consumer demand soars. The price indexes remain of interest, as government measures have lit a fire under demand but constrained supply. On that note, May PPI (Tuesday) and May trade prices (Wednesday) should be strong, but unlikely to worry markets given confidence that it is all transitory. Housing starts (Wednesday) are pegged at a 1.700 mln unit rate in May from 1.569 mln in April, providing yet more evidence that the housing sector is booming amid low rates and shifting demand.

The earnings slate is thin this week, with only Oracle on Tuesday, Lennar on Wednesday and both Adobe and Kroger reporting due Thursday.

All eyes will be on the CPI this week in Canada, although the report seems unlikely to shake-up the BoC given last week’s announcement reiterated that base year effects have driven the spike in annual CPI growth to the 3% area. BoC Governor Macklem appears before the Standing Senate Committee on Banking, Trade and Commerce (Wednesday). The Bank was largely upbeat on the growth outlook in last week’s announcement despite the undershoot of their Q1 GDP estimate. Of course, they continued to highlight that employment remains “well below” the levels seen before the pandemic while Covid remains a source of uncertainty. Hence, a further taper looks to be on the menu for July, but the current accommodative rate setting is not going away soon.

The CPI is seen accelerating to a 3.6% y/y clip in May from the 3.4% rate in April. The CPI is projected at 0.5% in May (m/m, nsa) after the 0.5% climb in April. The manufacturing report (Monday) is expected to show a -1.1% drop in April after the 3.5% surge in March, as the chip shortage hammers the auto sector.

Housing starts (Tuesday) are seen nearly steady at a 270.0k clip in May from 268.6k in April. The forecast range around these reports remains wide given the unpreceded shifts in demand patterns, labor supply, and fluctuating government restrictions. The April wholesale trade report is due Wednesday, which shipments have seen falling -1.0% while May existing-home sales data is expected Tuesday — look for another round of robust annual sales and price gains.

ASIA

This week’s regional calendar is of great interest with several central bank meeting and data on inflation, trade, and retail sales. Japan’s docket features the BoJ policy meeting, along with May trade report, the tertiary index, core machinery orders and the May national CPI. In India, CPI and trade are on tap. Elsewhere, other central bank meetings include Taiwan and Indonesia, where rates are seen steady at 1.125% and 3.50%, respectively.

Japan’s calendar is loaded with a BoJ meeting and a heavy slate of key economic reports. The BoJ ends its two-day meeting on Friday, and while the policy measures currently in effect will remain, including the -0.10% rate and yield curve management, there is risk the Bank could extend its covid aid program, which is currently set to expire in September, either at this meeting or in July. Rising Covid cases have hit consumption in Japan, negatively impacting growth so far this year, with another recession looming as the rise in infections over the spring and the renewed emergency measures have weighed on the economy, while also leaving consumer prices remain in deflation since the fall of 2020. As for data, revised April industrial production is due Monday.

It rose 2.5% in April after a 1.7% bounce in March. Strength was in shipments which rose 2.6% on the month. The 12-month pace surged to 15.4% y/y from 3.4% y/y previously. The April tertiary industry index (Tuesday) should fall -0.9% m/m, unwinding much of the 1.1% March rebound following the declines of -0.3% in February, -1.0% in January, and -0.4% in December. The index has been on a bumpy road amid covid difficulties and trade disruptions. The May trade report (Wednesday) should see the JPY 253.1 bln surplus flop to a JPY -100.0 bln deficit. Exports climbed to a 38.0% y/y pace in April, while imports rose to a 12.8% y/y clip. April core machine orders (Wednesday) are projected to increase 3.0% m/m after the 3.7% March jump. May national CPI (Friday) is expected to post a -0.3% y/y rate of decline, decelerating slightly from the -0.4% previously, while inching up to an unchanged y/y clip versus -0.1% on a core basis. The core rate has not been in positive territory since March 2020.

Chinese May in data will continue to show the recovery remains on track though has slowed a bit from the very robust pace as the globe started to open up a year ago. May industrial output (Wednesday) is expected to slip to a 9.0% y/y rate from 9.8% previously. May retail sales (Wednesday) should continue to slow, likely decelerating a 15.0% y/y pace versus 17.7% previously, and the 34.2% clip in March. May fixed investment (Wednesday) is penciled in at 16.9% y/y from 19.9%. India May WPI (Monday) likely warmed to 13.5% y/y from 10.5%, while May CPI (Monday) is forecast to have risen to a 5.3% y/y pce from 4.3%. The May trade report (Tuesday) is expected to see the deficit narrow to $6.3 bln from $15.2 bln in March. Taiwan’s central bank meets (Thursday) and will likely keep its 1.125% discount rate steady. Hong Kong May unemployment (Thursday) should dip to 6.2% from 6.4%. Indonesia May trade report (Tuesday) has the surplus ticking up to $2.3 bln from $2.2 bln. Bank Indonesia meets on Thursday with no change to its 3.50% 7-day reverse repo rate expected.

In Australia, the employment report will be the focus, with attention also likely to linger on the RBA’s June meeting minutes and a speech by RBA governor Lowe. The employment report (Thursday) is expected to reveal 35.0k rebound in May after the -30.6k fall in April. The unemployment rate is seen holding at 5.5% from 5.5% in April. Governor Lowe (Thursday) delivers a speech to the Australian Farms Institute Partner Forum. The minutes to the June meeting are due Tuesday. To review, the RBA kept policy settings unchanged this month, matching widespread expectations. Officials confirmed they will make a decision in July on whether to extend the yield target and undertake further quantitative easing. There was a lot of positive noise on not just growth, but also unemployment developments. However, Governor Lowe maintained that the rates will not be changed until 2024 at the earliest. New Zealand’s calendar comes alive this week with Q1 GDP and the Q1 current account. The GDP report (Thursday) is projected to show a 0.7% growth rebound in Q1 (q/q, sa) after the -1.0% drop in Q4. The current account (Wednesday) is seen at -NZ$2.5 bln in Q1 from -NZ$2.7 bln in Q4.

EUROPE

Eurozone: the ECB played it safe and reassured markets that monthly PEPP purchases will continue at a “significantly” higher pace than at the start of the year. While there was a sense that officials are getting more confident that the recovery is established now, which was also reflected in more optimistic projections, it seems the “tourism bloc” got spooked by fresh travel restrictions imposed in the U.K., which threaten to spoil the party. Covid has coincided with Brexit though and in the medium term those predominantly reliant on tourists from the U.K. may have to rethink their strategy going forward. Still, a commitment to keep purchases higher than in Q1 leaves wiggle room for a slight taper over the summer before a thorough re-assessment of the situation with the next round of forecast revisions in September.

This week’s data round is unlikely to rock the boat or change the outlook as it will largely be backward looking and focus on final inflation data for May. German final May HICP (Tuesday) is expected to be confirmed at 2.4% y/y (median same) and French at 1.6% y/y, which should leave the overall Eurozone CPI (Thursday) at 2.0% y/y. That is in line with the ECB’s upper limit for price stability, but mainly driven by base effects and temporary factors. In any case, the ECB’s 2% guideline is medium term — after the prolonged undershoot the central bank can afford to let inflation run hotter for a while, as long as there is sufficient slack in the economy to prevent temporary factors from becoming entrenched.

Eurozone production data is out Monday, trade data Tuesday and current account numbers (all for May) at the end of the week. After disappointing national data, the Eurozone production number could also disappoint, while trade and current account surpluses are likely to remain solid, with a stronger EUR tempering the impact of higher energy prices in the import bill. German PPI inflation is due Friday. Germany sells 2-year Schatz notes on Tuesday and a 10-year Bund on Wednesday. The ESM is also issuing bills and there was talk that the placing of the EU’s new recovery bonds may start this week.

U.K.: the prognosis for the UK economy in the months ahead is looking good, despite a rise in Covid cases. The UK on Friday released April and second-revision Q2 GDP data, alongside April industrial production and trade data. Monthly GDP rose 2.3% m/m, slightly missing expectations for 2.4%, and manufacturing, production and construction data also disappointed. With virus restrictions easing in a staged process in recent months as the vaccination program progressed, the data naturally remains uneven, but more timely survey data suggests that growth is broadening and strengthening now.

While there has been a creep higher in new Covid cases in the UK, which has caused the prime minister to publicly ruminate that the fourth and final phase of the government’s “roadmap” to reopening, scheduled for June 21, might be delayed (he will decide on Monday), there are good grounds to expect this won’t develop into a full blown wave given the level of vaccinated people in the UK. Most the spread has been young adults who have yet to be vaccinated, and whose infection hasn’t led to any marked increase in serious illness and hospitalisations.

The calendar this week brings the latest BoE data on monthly lending and money supply (Tuesday), May inflation data (Wednesday) and May retail sales (Friday). Markets are discounting a rise in headline CPI to 1.8% y/y from 1.5%, with core CPI lifting to 1.5% y/y from 1.3%, and a 1.8% m/m expansion in retail sales.

Switzerland: the quarterly monetary policy review (Thursday) highlights the calendar. The SNB is widely expected to keep policy settings unchanged at its quarterly policy review. Inflation remains far below the central bank’s implicit target, with core at just 0.2% in May readings. Like other central banks the SNB has acknowledged the risk of reigning in support too late, but for now officials clearly see more need to keep the economy supported through the early stages of the recovery. Seco publishes new economic forecasts on Tuesday and after the ECB lifted its projection for this year there could be upward revisions to growth inflation forecasts, but nothing really to prompt the SNB to reign in its balance sheet for now and central bankers will also be keen to keep a lid on the CHF for now.

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 weekly 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

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 are 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.

Economic Data Calendar

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

We have a heavy release schedule surrounding the FOMC policy statement on Wednesday. We expect a May retail sales headline drop led by autos, alongside a small April business inventory drop. A small gain is likely for industrial production in May, alongside a housing starts and permits rebound. We expect moderate May PPI gains and big increases for the trade price indexes. We expect small Empire State and Philly Fed swings around elevated levels in June, while the leading economic index posts another big increase in May.

Week of June 14

The robust CPI figures for May were the data-highlight of the week, as they confirmed that hefty PPI and trade price increases in 2021 are working their way through the system to the consumer level, alongside widespread capacity constraints and bottlenecks, and “base effects” that are lifting the y/y measures. We now assume that the y/y CPI figures at the end of the year will lie around 3.9% for the headline and 3.4% for the core. This is well past the period of “base effects,” and reflects the massive upward ratcheting that we’ve seen in prices for goods and services that are in greater demand in the “post pandemic” period.

We assume it will take a year or two to build all the homes, vehicles, and washing machines that we’ll need to support our new economy, and we’ll see upward price pressure for construction materials, equipment, metals, and other basics through that period. Of course, the shift in demand toward some goods and services is mostly offset by a shift in demand away from other areas, and downward price pressures here should mitigate the headline inflation effect. Nonresidential properties in urban areas are facing price markdowns, and medical care inflation has moderated. More generally, prices might not fully recover for entertainment and travel related services for some time, and especially in urban areas.

At issue for the longer term inflation outlook is the degree to which big 2021 price gains prompt a boost in the public’s inflation expectations. Thus far the damage has been limited. The fact that most y/y inflation metrics will likely peak in Q2 and trend downward into Q4 should re reassuring, and the Michigan sentiment report for June already revealed a drop in the 1-year inflation measure to 4.0% from a 13-year high of 4.6%, while the 5-10 year measure fell to 2.8% from a 10-year high of 3.0% last seen in 2013. If the upward post-pandemic price surge subsides fast enough, we may find that the impact on inflation expectations is indeed transitory.

Empire State/Philly Fed Index: 22.0/33.0

The Empire State index is assumed to slip to 22.0 in June from 24.3 in May and a 30-month high of 26.3 in April, versus a 7-month low of 3.5 in January. The Philly Fed index is seen rising to 33.0 in June from 31.5 in May, versus a 48-year high of 50.2 in April and a previous 11-month high of 30.1 in January. Despite the small assumed swings, levels will likely remain robust. These diffusion indexes will be boosted through at least mid-2021 as factory activity continues to ramp up. Coronavirus vaccines and two rounds of stimulus payments in Q1 have provided a solid lift for sentiment, alongside the upward pressure on output from lean inventories, and rebounding demand in many industries well above pre-pandemic levels.

PPI/Core: 0.3%/0.3%

We expect a 0.3% May PPI headline rise with a 0.3% core price gain, following respective gains of 0.6% and 0.7% in April. As expected readings would result in a dip for the y/y headline PPI metric to 5.9% from 6.2% in April. We expect a 4.5% y/y rate for the core, up from 4.1% in April. The y/y headline PPI of 6.2% in April should represent the peak of this inflation metric from hard comparisons, while the core y/y rate should peak at 4.5% in May. The massive PPI climb since the start of the year has been fueled by even bigger gains in commodity and trade prices, alongside ongoing supply constraints that have lifted the inflation indexes in 2021. Price pressures are working their way through to the consumer level, given Massive headline and core CPI gains in April and May.

Retail/Ex-Auto Sales: -0.5%/UNCH

We expect a -0.5% May retail sales headline drop with a flat ex-auto rate, following respective April figures of unchanged and -0.8% as the March pop from stimulus checks began to unwind. We saw a -0.7% drop for the CPI gasoline index that will weigh on service station sales. Unit vehicle sales fell to an inventory constrained 17.0 mln in May, following a 16-year high of 18.8 mln in April that extended a big jump to 18.0 mln in March. We expect continued strength in non-store sales, and an extension of the rebound for sales of clothing, furniture, electronics, and appliances as we continue to reverse last year’s pandemic hit. Real consumer spending is expected to grow at a 9.6% rate in Q2, after rates of 11.3% in Q1 and 2.3% in Q4.

Industrial Production: 0.2%

Industrial production is projected to rise 0.2% in May, after the 0.5% April headline increase. We saw April gains of 0.2% for manufacturing, and 0.9% for mining, and 2.5% for utilities. In May, we expect 0.5% increases for both manufacturing and mining. We expect a -2.0% utility decrease attributable to mild weather. We expect the vehicle assembly rate to rise to a still-depressed 9.3 mln in May from 8.8 mln in April, as assemblies are being disrupted by semiconductor shortages. Mining output should continue to rise, alongside the modest uptrend in the Baker-Hughes rig count. Capacity utilization should rise to 74.7% from 74.6% in April. Industrial production expanded at a 2.8% clip in Q1, and we expect faster growth rates of 5.4% in Q2 and 6.7% in Q3.

Business Inventories: -0.1%

Business inventories are estimated to fall -0.1% in April after a 0.2% (was 0.3%) March increase. Our forecast incorporates a 0.3% rise for factory inventories, alongside a 0.8% wholesale increase and -1.6% retail drop as seen in the advance report. Sales should rise 0.3% in April, after a 5.6% (was 5.7%) pop in March. As-expected readings would result in the I/S ratio slipping to a 9-year low of 1.25 from 1.26 in March, versus an all-time low of 1.24 in March of 2011 and an all-time high of 1.72 in April of 2020. We saw a -$92.9 bln liquidation rate in Q1 that subtracted a whopping -$155.0 bln from Q1 GDP growth, and inventories should liquidate further through Q2. A $62.1 bln accumulation rate in Q4 of 2020 capped a prior 4-quarter stretch of liquidation through Q3. Inventories were already unwinding pre-COVID-19 as earlier tariff front running reversed course before the big Q2 hit, leaving room for a protracted inventory rebound through the second half of 2021.

Housing Starts: 1.680 mln

Housing starts are expected to bounce to a 1.680 mln pace, after a dip to 1.569 mln in April from a 15-year high of 1.733 mln in March. Permits are expected to improve to 1.750 mln from 1.733 mln in April, 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, though these figures have since fallen to a 1-year low at the end of May, 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 1.653 mln average for starts in Q2, another new high following new recent highs of 1.602 mln in Q1 and 1.575 mln in Q4. We expect a 1.748 mln average for permits in Q2 that falls short of the 1.788 mln average in Q1.

Import/Export Price Index: 0.8%/0.8%

Both import and export prices are estimated to rise 0.8% in May, after April gains of 0.7% for imports and 0.8% for exports. Ex-petroleum import prices are expected to grow 0.5%, while ex-agriculture export prices grow 0.8%. We expect a residual boost from the Suez canal closure. Oil prices rose sharply through the turn of the year, with an extra-updraft in February from the Texas freeze that idled some production, but we saw a moderation in energy prices in March and April before a climb in May and June. The ongoing rebound in global production since the middle of 2020 has been associated with bottlenecks and shortages in many industries that have raised prices, and a downtrend in the value of the dollar has aggravated commodity price gains. The markets have focused on upside inflation surprises in 2021.

Leading Indicators: 1.6%

The leading economic index likely bounced 1.6% in May, led by claims and ISM orders data, after big stimulus-fueled gains of 1.6% in April and 1.3% in March, but a weather-depressed -0.1% February drop. 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 May.

Initial Jobless Claims: 370k

Initial jobless claims are expected to fall -6k to 370k in the BLS survey week, after a -9k drop to 376k from 385k in the prior week. Initial claims have set new cycle-lows in each of the last six weeks with a steep rate of decline, following a restrained drop-back between November and March. Claims are expected to average 368k in June, after averages of 427k in May, 582k in April, and 724k in March. Our estimate lies well below recent BLS survey week readings of 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 550k June payroll rise, following a 540k average monthly gain over the last four months.

Continuing claims fell by -258k to 3,499k in the week of May 29, following a downwardly revised 3,757k figure. We expect continuing claims to fall -19k to 3,480k for the week ending June 5. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. We expect continuing claims to fall -161k between the May and June BLS survey weeks. We saw prior drops of -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Week of June 21

We have a heavy release docket in the last full week of June. We expect a Q1 GDP growth trimming to 6.2% from 6.4%, alongside another big May personal income drop and a moderate consumption gain. We expect a May widening in the goods trade balance that still leaves the deficit below the record-high in March. We expect small home sales swings that are downward for existing home sales and upward for new home sales, as both measures are heavily constrained by tight inventories, while the median price measures oscillate around all-time highs. We expect a May bounce in durable goods orders led by transportation, while the current account deficit widens to a new 15-year high from a 13-year high in Q4.

Existing Home Sales: 5.750 mln

We expect existing home sales to fall -1.7% to 5.750 mln in June from 5.850 mln in April, versus a 14-year high of 6.860 mln in October. These sales are tracked at closing, so we’re seeing a lagged hit from bad weather in February, though the recovery in all the housing measures have stalled in Q2 as the sector faces a wide array of capacity constraints that are driving prices higher and capping demand. Pending home sales fell -4.4% in April, after a 1.7% March bounce but an -11.5% plunge in February. The MBA purchase index fell -4.5% in April and another -5.1% in May, after a 1.7% March gain but -11.5% February plunge. 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 slightly to 2.4 by April. The median sales price is pegged at $339,000 in May from an all-time high of $341,600 in April. We expect a pickup in the y/y median price gain to 19.6% from 19.1% in April. 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 5.793 mln pace in Q2.

Current Account: -$207.1 bln

The current account balance is expected to widen to a -$207.1 bln level in Q1 that would mark a 15-year high, from a 13-year high of -$188.5 bln deficit in Q4. We saw a -$212.8 bln goods and services trade deficit in Q1. As a percentage of nominal GDP, the gap is expected to sit at -3.8% in Q1, down from -3.5%. We saw Q1 growth for goods, services, and income of an estimated 19.3% for exports and 23.9% for imports, as global trade in goods and services continues to rebound from the COVID-19 hit. We expect an annual current account deficit of -$807 bln in 2021, versus a high from the last expansion of -$480 bln in 2019. The deficit is sitting near to the -$806 bln record gap back in 2006.

New Home Sales: 880k

We expect a 2.0% May climb for new home sales to a 880k pace, following an April dip to 863k from 917k in March. We’ve seen an 11-month stretch of sales through April that are at the highest rates since a 1,016k reading in September of 2006. We expect a median sales price dip to $370,000 from $372,400 in April, versus a $373,200 all-time high in January, leaving a y/y increase of 16.7%. We expect a 878k Q2 pace for new home sales, after a 921k rate in Q1. We’re seeing rapid growth in demand for new homes in 2021. Construction has lagged sales, and the market is heavily inventory-constrained. We expect a steady climb in starts and completions through 2021 in the face of unprecedented home demand, though the sector is pressing against capacity constraints, and growth in sales beyond lofty late-2020 levels has proven hard to sustain.

Durable Goods Orders: 3.0%

Durable goods orders are expected to bounce 3.0% in May with a 9.8% rise in transportation orders, after a -1.3% headline decrease in April that included a -6.6% transportation orders drop. The durable orders rise ex-transportation is pegged at 0.4%, after a 1.0% April increase. A defense orders pop is pegged at 22.0%, following a -22.5% April plunge. Boeing orders rose to 73 planes, after a drop to 25 in April from a 2-year high of 196 in March. The vehicle assembly rate should rise to 9.3 mln in May from 8.8 mln in April. Durable shipments should rise 1.0%, and inventories should rise 0.7%. The I/S ratio is expected to sustain the April drop to 1.77, versus a 2-year low of 1.74 in January and an all-time high of 2.39 in April of 2020 for a series extending back to 1992.

Advance Indicators Goods Deficit: -$89.0 bln

We expect the advance indicators report to reveal an May widening in the goods trade balance to -$89.0 bln from -$85.7 bln in April and an all-time wide gap of -$91.9 bln in March. We expect exports to grow 2.0% to $147.6 bln, while imports grow 2.6% to $236.6 bln. Oil prices rose through May, hence providing a lift for petroleum sector trade, while trade in vehicles likely bounced in May after big 2021 declines through April attributable to semiconductor shortages. We expect a -$28 bln bilateral goods balance between the U.S. and China with elevated imports as U.S. businesses rebuild inventories largely with imported goods. We saw a -$43.1 bln all-time wide bilateral gap in October of 2018. The advance report should also reveal a May gain of 1.1% for wholesale inventories and -0.7% auto-led drop for retail inventories.

Final Q1 GDP: 6.2%

We expect a Q1 GDP growth trimming to 6.2% from 6.4%, with a -$13 bln downward bump for net exports and a -$3 bln trimming for wholesale inventories, but hikes of $2 bln for retail inventories, $4 bln for nonresidential construction, $2 bln for residential construction, and $1 bln for public construction. The firm Q1 GDP gain documents the updraft from vaccine distributions and two rounds of fiscal stimulus during Q1, alongside a seasonal Q1 updraft after the Q4 downdraft attributable to the mismatch of seasonal factors with this year’s disrupted holiday activities. Much of the gyration was in consumption, which stalled in Q4 but surged in Q1, alongside moderating growth in residential and nonresidential fixed investment. Inventories subtracted sharply from GDP in Q1, as businesses were unable to keep up with demand. Imports were robust, though gains were restrained by port backlogs, while exports have been restrained by weak growth abroad.

Personal Income/Consumption: -2.8%/0.7%

We expect a -2.8% personal income pull-back after the -13.1% April plunge, with a 1.0% May rise in compensation after 0.9% gains in March and April. The wage gain reflects 0.5% May gains for both hours-worked and hourly earnings. We expect a -13.8% May drop in “current transfer receipts” after a -41.4% April decline, as this measure tracks the pull-back in stimulus spending. We expect a 0.7% rise in consumption after a 0.5% April gain. We expect a savings rate drop to 11.8% in May from 14.9% in April and a 27.7% peak in March, versus a 13.1% prior low in November. We saw prior peaks of 20.6% in January and 33.7% in April of 2020. We peg disposable income growth at -24.5% in Q2, after a 67.7% surge in Q1, and contraction rates of -6.2% in Q4 and -14.4% in Q3. We expect a growth rate for real consumption of 9.6% in Q2, after growth rates of an estimated 11.3% in Q1, 2.3% in Q4, and 41.0% in Q3.

Michigan Sentiment, Final: 86.4

We expect the final June Michigan sentiment report to reveal an unrevised 3.5 point rise to 86.4 from 82.9 in May, following cycle-highs of 88.3 in April and 84.9 in March, and a 6-month low of 76.8 in February. We saw a current conditions rise to 90.6 from 89.4 in May, following cycle-highs of 97.2 in April and 93.0 in March, and a 4-month low of 86.2 in February. Expectations rose to a cycle-high 83.8 from 78.8 in May, versus an 82.7 prior cycle-high in April and a 3-month low of 70.7 in February. The 1-year inflation gauge fell to 4.0% from a 13-year high of 4.6% that matched highs in April and March of 2011. We saw a 9-year high of 3.4% in April. The 5-10 year inflation measure fell to 2.8% from a 10-year high of 3.0% last seen in 2013, versus a 7-year high of the same 2.8% in March that was last seen in July of 2015. Firm June confidence is good news, though the climb with vaccine distributions and stimulus may have peaked in April, as seen with Michigan sentiment. We expect the June consumer confidence measure to lie just below it’s April peak as well. The IBD/TIPP index set the same cycle-high in both April and June however, and the Langer index has continued to rise.