Report (Premium Edition) Updated 06-21-2021

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.

LastCHG %CHGHIGHLOWTREND
Dow33290.09−1.58%−533.3733447.4933271.93Bear
S&P 5004166.46−1.31%−55.394204.784164.4Bear
Crude (WTI)71.9170.57%0.40772.38771.41Bull
Gold1783.031.08%19.081785.731763.76Neutral
10 Year1.431−0.82%−0.0121.4451.354Bear
Bitcoin/USD32520.44-8.62%-3069.333563.832094.23Bear
US Dollar Index92.052−0.29%−0.26992.37392.035Bull
VIX20.16−2.61%−0.5421.8219.69Bull

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.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials-6.70%-7.90%3.30%13.10%1.40%38.30%86.00%Bear
 Communication Services-1.10%4.90%5.40%16.10%4.40%66.90%64.00%Neutral
 Consumer Cyclical-1.30%1.30%3.60%10.10%-1.50%80.30%166.40%Bear
 Consumer Defensive-3.20%-2.70%4.30%3.70%-8.00%45.40%48.20%Bear
 Energy-5.30%-1.00%8.30%43.40%31.70%-20.40%-7.20%Neutral
 Financial Services-5.90%-5.50%1.60%20.10%8.50%33.50%106.40%Bear
 Healthcare-0.80%1.80%7.50%8.50%-3.10%56.30%104.20%Bull
 Industrials-3.90%-3.00%1.90%12.60%0.90%41.20%95.60%Bear
 Real Estate-3.10%4.70%11.60%20.60%8.90%43.60%46.00%Neutral
 Technology0.50%7.00%9.40%8.80%-2.90%110.10%279.50%Bull
 Utilities-3.20%-1.70%3.80%3.00%-8.60%37.40%48.20%Bear

Key Drivers for the Week of June 21, 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.

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  • Markets equilibrate to FOMC shift as inflation and growth accelerate
  • Central bank meeting: BoE, Bank of Taiwan, Philippines, all seen on hold
  • Fedspeak awaited, including Powell, for more clarity on timing of QE tapering
  • U.S. calendar: home sales, income, PCE prices, durables; coupon auctions
  • Asian slate has inflation reports from Korea, Hong Kong, Malaysia
  • Eurozone PMI data likely to support hawkish camp on the ECB
  • Germany releases Ifo business climate survey, GfK consumer confidence
  • UK data on June PMIs, composite could show record strength

Week Ahead: Shifting Sands of Monetary Policy

On June 21, 2021

The sands of monetary policy shifted further with the Fed’s hawkish tilt last week. That joined recent moves/signals of reduced accommodation from other central banks including the BoE, BoC, Norges, Riksbank, and RBNZ as they address accelerating inflation and improving growth. In the U.S., it is a busy docket of Fedpseak with half of the FOMC on tap, including Chair Powell.

It has been a volatile couple of days as the markets adjust to the FOMC, as well as signs of other central banks that ultra accommodation might be getting long in the tooth. Though any actual rate hikes are still far in the distance, the reality that QE tapering, which will be the precursor to increases in rates, weighed heavily on the front end. 

Most of the market took a hit last week, but the tech sector and US Dollar came back strong after Powell’s hawkish comments. The dollar has consolidated at modestly softer levels after rallying strongly last week. The DXY dollar index drifted to levels around 92.10, down from Friday’s two-month high at 92.40. EUR-USD concurrently lifted to near 1.1900 from Friday’s two-month low at 1.1846. 

I don’t think this trend will hold, because we do not agree that inflation will be transitory. Rising inflation will likely be here for a long time.

That being said I do think inflation will be reduced if the increased spending by Congress and Biden’s plan is stopped or minimized. Right now the Senate is at a standstill regarding the several large spending bills such as the “Infrastructure Bill” as it does not have the support of Sen. Joe Manchin. Without his support, it is unlikely to pass.

Does this mean inflation will stop rising, no? It will just slow a bit. Investors would be wise to prepare for high inflation for the next coming years.

Investing Idea: The analytics firm IHS Markit said the age of cars and light trucks increased by .20 years from 11.9 years in January 2020 to January 2021. I believe that there is an opportunity for investors to make a profit with auto parts companies in the coming years. Later this week will be releasing our stock picks.

In the crypto realm, bitcoin and its brethren dropped sharply after China intensified its crackdown on mining activities. The ongoing high volatility in bitcoin renders it untenable for most potential mainstream users as a means of exchange or unit of account, and a questionable repository of value, while concerns about its environmental impact and legitimacy (underworld use of cryptocurrencies and the endemic problem of scams) are other deterrents. The most recent BoA survey of global fund managers found that 81% of investors believe cryptocurrencies remain at bubble-like elevations.

The BoE’s decision should be uneventful with no change in rates or QE, and a slowing in asset purchases which Governor Bailey said was purely operations and not a change in policy. ECB President Lagarde’s speech to the European Parliament is likely to defend the status quo, though data releases should on the whole support the hawkish camp at the ECB.

In Asia, inflation reports are on the docket, including Japan Tokyo CPI and national PPI feature. There are central bank meetings with the Bank of Thailand and the Philippines bank meet widely expected to keep rates unchanged.

NORTH AMERICA

In the U.S., it was all about the FOMC last week and it did not disappoint. And the Fed will remain the locus of attention as the market continue to adjust to the shift to the more hawkish stance. News of QE talk, and more so the boost in the dots following sharp upward revisions in inflation and growth projections, where the catalysts for big market moves with the Treasury curve flattening and Wall Street tumbling. And hawkish comments from St Louis Fed’s Bullard added to the pressures.

Fedspeak is a highlight in the week ahead with about half of the FOMC hitting the airwaves. Chair Powell will be the focus with his Congressional testimony (Tuesday) on the covid response. The more hawkish Bullard, who is a 2022 voter, kicks off (Monday) with his comments on the economic outlook. It was his remarks on Friday that set off another leg lower in bonds and stocks on Friday, though longer dated Treasuries recovered amid support from curve flattening trades. Other Fedspeakers this week include NY Fed’s Williams, Mester, Daly, Bowman, Bostic, Rosengren, and Harker. Note that Mester and Rosengren are also 2022 voters and who have typically followed a more hawkish bent before the pandemic caused all to take on a dovish posture.

The heavy data calendar will play second fiddle to Fedspeak this week, although it includes key reports on home sales, income, consumption, the PCE inflation numbers, durables, sentiment, and trade. Income and consumption (Friday) will be closely watched — we expect a -2.8% personal income decline after the -13.1% April plunge, with a 1.0% May rise in compensation after 0.9% gains in March and April. The PCE price index jumped to 3.6% y/y in April from 2.4% in March. A further pick-up would not be welcome, although the Fed continues to flog the transitory storyline. The inflation gauges in the final June consumer sentiment report (Friday) will be worth a look as well.

Supply heats up again this week, concentrated at the short end. The Treasury is selling $183 bln in debt, including $60 bln in 2-year notes (Tuesday), $61 bln in 5-year notes (Wednesday), and $62 bln in 7-year note (Thursday), along with $26 bln in 2-year FRNs reopening (Wednesday). The 2-year cheapened sharply on Friday with the wi yield climbing 4.5 bps to 0.270%. A stop here would be the highest since March 2020. That’s the highest late March 2020. The wi 5-year richened fractionally to 0.90% and the wi 7-year rate fell 4.5 bps to 1.235%, both of which would be the highest since February 2020, .

The earnings calendar is empty Monday and Tuesday. Wednesday has IHS Markit. Thursday -has Nike, Accenture, FedEx, and Darden Restaurants. Friday brings Paychex, and CarMax.

Retail sales highlight a sparse docket this week in Canada. Our projection is for sales to plunge -5.1% in April after the 3.6% bounce in March as a return of restrictions weighed on consumption. The ex-autos sales aggregate is projected at down -5.0% after the 4.3% pop in March. An as-expected report would likely be taken in stride, as vaccinations rates have improved and restrictions have been relaxed. The new home price index (Monday) and average weekly earnings (Thursday) are also due this week.

There is nothing scheduled from the Bank of Canada this week. Looking further ahead, the BoC is expected to maintain its 0.25% rate setting on July 15. However, further tapering is anticipated, with another C$1.0 bln taper seen next month, leaving QE totals at C$2.0 bln. A follow up cut of C$1.0 bln to C$1.0 bln in QE is seen around the turn of the year. The BoC tapered its QE program to C$3.0 bln from C$4.0 bln in April, but held it steady at the June announcement. Notably, the BoC has taken tangible steps to trim emergency accommodation, while the Fed is just getting started talking about tapering.

ASIA

This week’s regional calendar is light, but features inflation numbers from Japan, Korea, Hong Kong, and Malaysia. There is also a small smattering of trade, employment and production data. China’s docket is empty. A couple of central bank meetings are scheduled, including the Bank of Taiwan and the Philippines. No policy changes expected from either, leaving rates seen steady at 0.50% and 2,00%, respectively. The BoJ releases the minutes from the 26-27 April monetary policy meeting.

Japan’s BoJ releases the minutes to the April 26-27 MPM (Wednesday). That meeting had the Bank noting the “economy had picked up as a trend,” but mainly in manufacturing, along with favorable external demand. However, services consumption had been pushed down by the pandemic. It also cautioned that the uncertainties over the pace of the vaccine rollout and the effectiveness of the vaccines, attention should be on the downside risks. The May services PPI (Thursday) should cool slightly to 0.9% y/y from 1.0%. The June Tokyo CPI report (Friday) is forecast edging up slightly to a -0.3% y/y pace of deflation, from -0.4% overall, and -0.1% y/y from -0.2% on a core basis. The core rate has been in deflation since last August, with the downtrend worsening late last year due to the pandemic.

Taiwan May exports (Monday) are expected to be little changed at a 42.0% y/y rate after climbing to 42.6% in April from 33.2% in March. Orders have posted 12-month gains of between 29.8% y/y and 49.3% y/y since November, helped by the rebound in the global economy. May unemployment (Tuesday) is seen steady at 3.7%. The rate is down from the increase to 4.1% in April and May of last year, which was the highest since late 2013. May industrial output (Wednesday) is penciled in at dipping to a 13.0% y/y rate from 13.6% in April and 16.1% in March. South Korea has May PPI (Tuesday) is forecast at a slightly cooler 5.3% y/y from 5.6%. Prices emerged from nine straight months in deflation in December with a 0.2% y/y gain, and accelerated through April. June consumer confidence (Thursday) likely dipped to 105.0 after jumping 3 points 105.2 in May which was a 3-year high.

Confidence has been rising pretty steadily since crashing to 73.3 in April 2020 as the global economy recovers. Hong Kong May CPI (Tuesday) should pick up modestly to 0.9% y/y from 0.7%. Price pressures have been on the rise here too. This would be a fifth month in positive territory after 6 months in deflation. In Thailand, the Bank of Thailand meets (Wednesday) with no change to its 0.50% repo rate expected. It’s held that level since the 25 bps cut in May 2020. It was at 1.25% to end 2019, and was eased to 1.0% in early February 2020, and again dropped to 0.75% on March 20, 2020 as the pandemic took its toll.

May exports are estimated to have surged to a 28.0% y/y pace, more than double the 13.1% previously, which itself was a near doubling from the 8.5% y/y clip in March. Malaysia May CPI (Friday) is expected to slow a bit to a 4.6% y/y rate after soaring to 4.7% in April from .17% in March. This would be the fourth month out of deflation. The Philippines central bank meets (Thursday) and is seen on hold, with the overnight borrowing rate steady at 2.0%, where it’s been since the 50 bp easing in November 2020. The rate was at 4.0% in December 2019 and was slashed through 2020 to the current level in November.

In Australia, the preliminary look at May retail sales is the bright spot in an otherwise dim calendar. Retail sales (Monday) are expected to improve 1.0% in May following the final 1.1% gain in April. Assistant Governor Luci Ellis speaks to the Ai Group Business lunch (Wednesday). New Zealand: The trade report for May is due on Friday — the country ran a NZ$388 mln surplus in April and the surplus is expected to nudge higher to NZ$450 mln in May. The next meeting is July 14, where no change to the 0.25% rate setting is expected. However, the Fed’s hawkish tilt last week has rattled nerves on the outlook for the RBNZ and RBA, with worries that the banks may begin their own public discussion of tapering. That being said, global stimulus levels should remain elevated into next year even as central banks begin to talk about tempering emergency measures.

EUROPE

Eurozone: the ECB may have played it safe at the last meeting, but there were already hints of disagreement on tapering. And since then it has been even more apparent that the next meetings will be more controversial. The phrasing of the ECB’s statement already allows a slight scaling back of monthly purchase volumes over the quieter summer months and come September that is likely to be confirmed. Looking ahead, the really interesting question is whether the ECB will once again extend the PEPP program, which is currently set to end on March next year.

Comments from the ECB’s chief economist Lane suggest that a decision on the future of the program may not be taken until December, but the battle lines are already being drawn. Bundesbank President Weidmann in an interview with Germany’s Handelsblatt stressed again that “when the emergency for which the PEPP was created is over, it must be ended.” He still seems to expect that to happen next year, and he also suggested that purchases under the APP program should not be lifted in order to soften the impact of the end of PEPP. That was something French central bank head Villeroy had implied could happen if more support was needed after PEPP is phased out.

The doves, meanwhile, argue that cliff edge scenarios must be avoided and that the central bank has to act very carefully. The differences between the hawks and the doves are likely to become more apparent over the summer, and ECB officials also will look to the Fed’s guidance on tapering in coming months. For now though, ECB President Lagarde, who is set to speak to the European Parliament on Monday is likely to defend the status quo and the central bank’s decision to maintain the very accommodative policy settings.

Data releases this week should on the whole support the hawkish camp at the ECB and confirm that the recovery is strengthening and broadening across countries and sectors, as vaccination programs progress and restrictions are gradually lifted. The Eurozone manufacturing PMI (Wednesday) is expected to drop back to 62.6 (median 62.2) from 63.1, but this would still signal very strong growth, especially with supply chain constraints actually limiting production in some sectors. Services activity, meanwhile, is catching up and we expect an improvement in the services PMI to 57.8 (median 58.0) from 55.2, which should leave the composite at 58.4 (median 58.7), up from 57.1 in the previous month.

The German Ifo Business Climate (Thursday) should paint a similar picture and we expect an improvement in the headline rate to 100.0 (med 100.2) from 99.2 in May, thanks to stronger expectations and current conditions readings. The services sector is still struggling with virus restrictions, but re-openings continue and the situation continues to improve also thanks to plans for an EU wide vaccination passport, which is hoped to unlock the route to summer holidays.

France and Italy also release business confidence data, Germany has GfK consumer confidence on Friday and Eurozone M3 money supply data is due on the same day. The ECB’s economic bulletin on Thursday will be scrutinised for the strength of the growth outlook, while comments from ECB officials including Schnabel and Panetta will be watched for hints on tapering.

U.K.: new Covid infections have been a concern in the UK, spiking by over 9k on Thursday last week. But, there is a silver lining to this cloud in that the spread is being accounted for by younger unvaccinated adults while older, vaccinated people are largely proving to be immune. In the coming weeks, the vast majority of adults over the age of 18 will have been vaccinated with at least one dose of a leading vaccine. Well over 80% of the adult population now have antibodies, whether through vaccination or having had the virus in the past, and there is growing evidence that exiting vaccines are resistant to the Indian variant (especially among those who have received a double dose of the vaccine).

The BoE meeting (Thursday) headlines the calendar. However, it should be uneventful. We don’t expect any changes in policy with basically the same stance as seen in May, including a unanimous vote on maintaining the 0.10% repo rate but another 8-1 vote on QE with Haldane, who is leaving the MPC, again dissenting if favor of lowering the size of the quantitative easing program. The BoE is likely to remain optimistic on growth despite the renewed covid problems, while discounting the acceleration in inflation, still deeming them as temporary. And now with the hawkish shift in the Fed, the BoE has cover to continue it current stance. Look for the Bank to affirm that the rate of QE purchases would slow down, as previously signaled, which the Bank stressed was purely an operational decision that “should not be interpreted as a change in the stance of monetary policy.”

As for data, this week will be highlighted by the release of the preliminary June PMI surveys of private sector activity (due Wednesday). The median forecast for the composite headline on manufacturing and services is for a 63.0 reading, up fractionally on the 62.9 figure that was seen in May. This would mark a new record high for the data series going back to January 1998. The reopening from pandemic restrictions and the associated unleashing of ‘lockdown savings’ and recommencement of mothballed business investment planning has been driving a robust economic recovery, despite ongoing weakness in hospitality and public transport sectors.

Switzerland: the calendar this week is quiet. The next data of note will come the week after in the form of the June KOF leading indicator.

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 docket in the last full week of June. We expect a Q1 GDP growth boost to 6.5% from 6.4%, another big personal income drop in May, and a moderate consumption gain. We expect a May widening in the goods trade balance that still leaves the gap 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 median prices oscillate around all-time highs. We expect a May durable goods orders bounce led by transportation, while the current account deficit widens to a 15-year high.

Week of June 21

The FOMC minutes and press conference on Wednesday revealed huge upward revisions in the official GDP and inflation estimates for 2021, leaving median boosts of 0.5% for GDP, a whopping 1.0% for the PCE chain price headline, and 0.8% for the core measure. The FOMC now has respective 2021 median estimates of 7.0%, 3.4%, and 3.0%, versus our own respective estimates of 6.5%, 3.3%, and 3.2%.

The Fed’s upward GDP revisions exceeded boosts in most private sector estimates since March, while the inflation revisions fully kept up with market revisions, hence acknowledging the near-term inflation risks while sticking to the notion that the price hikes will prove transitory, given only modest revisions in the inflation forecasts for 2022 and 2023.

For the Fed’s GDP optimism, nearly all of the Fed’s individual GDP estimates lie above our own 6.5% forecast, and at least 75% lie above the more optimistic Blue Chip median estimate of 6.7%, given that the low-end of the central tendency is at 6.8%, while the low-end of the full range is at 6.3%. We already have much of the data for Q2, and we peg the Q2 GDP gain at 8.2%, which we see as the effective “speed limit” from capacity constraints. If our forecasts through Q2 prove correct, GDP growth in Q3-Q4 will need to average 6.7% if the Fed’s 7.0% GDP median for 2021 is to prove correct. Our projected Q3-Q4 average is a much lower 5.7%.

Remember that the income boost from stimulus peaked in Q1, and the GDP boost likely peaked in Q2. We expect “real” disposable income declines at rates of -29% in Q2, -9% in Q3, and -2% in Q4 as stimulus unwinds, despite average payroll gains of 500k over the three-quarter period. We see considerable risk that GDP growth disappoints to the downside in the second half of 2021, just as we never saw the seven-digit 2021 payroll gains projected by some for Q2.

One possibility is that the Fed chose to aim high with the June projections for both GDP and inflation, leaving room for mark-downs in September and December that might justify delays in both tapering and rate hikes. Put differently, they may have wanted to concede high growth and inflation in June, so tightening delays didn’t appear to reflect naive views on the limits for the U.S. economy. Either way, the big boosts in June keep the Fed’s options open regarding tapering and tightening, even if they currently appear to have accelerated both processes.

We continue to expect the Fed to reveal its tapering plans at the September meeting. By then, modest downgrades in GDP prospects alongside a downtrend in the various y/y inflation metrics will give the Fed room to adopt a start to tapering that is as late as January. This would leave in place what we believe was the implied timeline for tapering earlier this year, before the big upside inflation surprises. The choice would reflect the continued role of calendar-dependency, alongside data-dependency, that helps keep divergent FOMC policy views in line.

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 5.787 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 19.7% 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 -$811 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 bounced to 9.9 mln in May from 8.8 mln in April. Durable shipments should rise 1.0%, and inventories should rise 0.8%. 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 a 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 -0.6% auto-led drop for retail inventories.

Final Q1 GDP: 6.5%

We expect a Q1 GDP growth boost to 6.5% from 6.4%, with a -$13 bln downward bump for net exports and a -$3 bln trimming for wholesale inventories, but hikes of $13 bln for consumption, $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.

Initial Jobless Claims: 390k

Initial jobless claims are expected to fall -22k to 390k, after a 37k increase to 412k in the BLS survey week from 375k. Before Thursday’s bounce, initial claims had been setting new cycle-lows with a steep rate of decline over a 6-week stretch, following a restrained pace of decline between November and March. Claims are expected to average 388k in June, after averages of 428k in May, 582k in April, and 724k in March. The 412k June BLS survey week reading lies well below recent 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, and a 478k average gain thus far in 2021.

Continuing claims rose by 1k to 3,518k in the week of May 6, following an upwardly revised 3,517k figure. We expect continuing claims to fall -48k to 3,470k for the week ending June 12. 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.

Personal Income/Consumption: -2.8%/0.6%

We expect a -2.8% personal income decline after the -13.1% April plunge, with a 1.0% May rise in compensation after 0.9% gains in March and April. The compensation rise 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 0.6% rise in consumption after a 0.6% April gain. We expect a savings rate drop to 11.6% in May from 14.7% in April and a 27.6% 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 10.5% 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 confidence in June is good news, though the indexes may prove slow to advance much beyond the April climb with vaccine distributions and stimulus. We expect the June consumer confidence measure to sit near it’s April peak. The IBD/TIPP index set the same cycle-high in both April and June, and the Langer index has continued to rise to new highs.

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