One Big Buildup to Friday
After the turbulence of last week, with the Scottish referendum for independence on the one hand and the Fed decision on the other, this week is set to have an entirely different character that will be important to capture for those seeking to carve out a proper strategy . This week is expected to be a one big buildup to Friday’s US GDP and consumer sentiment releases. Up till then, the week will be full of data that will shed light on how well the world’s largest economy is doing and thus affect every Dollar-denominated asset, from Wall Street and US indices to FX pairs to commodities. If the data coming from the US paints an upbeat growth picture, i.e. a confident consumer, a robust housing market, etc., that would mean Wall Street could feel confident in pushing the S&P500, Dow Jones and NASDAQ higher, the Dollar higher as well, and perhaps sell more Gold (which tends to benefit from a weak Dollar). If the data release during the week draws a more fragile picture, then the Dollar could lose altitude, US equities could be re-priced lower and Gold might raise its head and surge higher. But what are the data and economic events set to shape this buildup?
It Begins with Housing
If one recalls, the whole economic crisis was ignited by the US housing market, hence its importance is high. The US housing market, one of the most important sectors in the US economy and, more importantly, a key barometer for economic sentiment, is set to have three big data sets released. The first, perhaps the most important, is existing home sales. It’s important because when sales of existing homes surge, there is a demand to build more new homes and the wheels of the economy spin faster. The July release of existing home sales rose by 2.4% (MoM), similar to June’s pace, thus investors will seek some acceleration; a reading above 2.8% could make investors happy and raise optimism for the US housing market. The next data will be US New Home Sales, which fell by -2.4% (MoM) in July; investors will want to see sales growth for August to feel the market is on better footing. And finally, housing prices; although rising housing prices is a must for a recovering housing market, it is basically a side-effect of the other two. If housing prices rise by more than 1% it is positive, but a rise by more than 2% (which is faster than inflation) points to real recovery in the housing market.
Durable Goods, Consumer Sentiment and GDP
Durable goods, an index comprised of elements such as automobile purchases, bricks for construction, cell phones, etc., is a good confidence indicator and growth north of 3-4% will be positive. The Reuters Michigan consumer sentiment will reflect consumers’ mood and then the long-awaited final release of US GDP for Q2. If US GDP is again revised higher from 4.2%, that will boost optimism over the US, and if other data sets are positive as well, it will conclude an upbeat week for the US and markets will act accordingly.
Down to Business
Basically, the data sets will reflect on two elements, the US growth in Q2 (as reflected in the GDP figure) and US growth in Q3 (as reflected in all other data sets that include Q3 results). If investors conclude that the US economy continues to recover in full throttle, this could mean a higher Dollar vs its peers, higher Wall Street indices and lower Gold. Anything else, and all assets which benefited from upbeat US sentiment, could be exposed to profit taking.
On the Plate
Existing Home Sales (Monday) – A reading above 2.8% will be upbeat.
US Housing Price Index (Tuesday) – If prices rise above 1%, that will be positive for Wall Street and the Dollar.
German IFO Business Climate (Wednesday) – If the reading moves closer to 110 that will be positive for European indices, especially the DAX.
US New Home Sales (Wednesday) – Anything above 0-1% could be positive.
Durable Goods Orders (Thursday) – Growth of between 3-4% will be upbeat.
US GDP Growth Annualized (Friday) – If the final release is revised up from 4.2% that will be strongly upbeat for the Dollar and Wall Street while negative for Gold.
Reuters/Michigan Consumer Sentiment (Friday) – If the index reaches closer to the 90 zone that would be upbeat and enforce the positive view on the US provided all other data sets are positive.
Chart of the week – EUR\USD
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