The week ahead: eyes on FOMC minutes - Nomura

Analysts at Nomura offered their outlook for the week ahead.

Key Quotes:

United States | Data preview

"We expect a solid gain in July durable goods orders excluding transportation and additional information on trade concerns from the FOMC minutes.

Existing home sales (Wednesday): We forecast a modest increase in July existing home sales despite ongoing structural impediments in the market for existing homes. Overall, we expect existing home sales to increase 0.6% m-o-m in July to an annualized pace of 5.41mn after two consecutive months of declines. Pending home sales, which tend to lead existing sales, increased steadily by 0.9% m-o-m in June after a 0.5% decline in May. However, given ongoing challenges in the market for existing homes, including supply shortages and rising mortgage rates, the expected increase in July could prove transitory.

FOMC minutes (Wednesday): Changes to the August FOMC statement language were very minimal, mainly reflecting incoming data. However, we expect the minutes to provide additional information on participants’ concerns regarding US trade policy and the possible downside risk from increased tariffs and softening business sentiment. In addition, as the Committee expects to raise rates two more times this year, in September and December, bringing the policy rate closer to the median longer-run estimate of 2.88%, conversations in the minutes regarding the neutral rate and whether policy will need to move into a restrictive stance will be important.

Initial jobless claims (Thursday): Initial and continuing claims continued to trend lower in recent weeks. Looking through weekly volatility, low initial and continuing claims appear consistent with continued labor market strength. We continue to expect low readings in the near term.

New home sales (Thursday): We expect new home sales to increase 2.0% m-o-m to an annualized pace of 644k in July after a 5.3% decline in June. Single-family permits increased in both June and July while the NAHB’s housing market index for single family homes remained elevated. While monthly readings tend to be volatile, we continue to expect gradual improvement in new home sales this year considering solid economic momentum. 

Durable goods orders (Friday): We expect durable goods orders excluding transportation to increase solidly by 0.5% m-o-m in July following a modest 0.2% gain in June. Industrial production for this category increased steadily during the month, up 0.4% m-o-m. In addition, the new orders subindex in the ISM manufacturing survey remained elevated. A solid gain in ex-transportation durable goods orders in July would be consistent with the firm economic momentum seen so far to start off Q3. For overall durable goods orders, we expect a flat reading during July, likely weighed down by a decline in orders for civilian aircraft and parts.

Euro area | Data preview

Euro area flash PMIs for August and UK budget deficit data will be in focus next week.

UK Budget deficit, July (Tuesday): So far in the first three months of the fiscal year (Apr-Jun) the headline deficit (PSNB ex-public sector banks) has been just over GBP5bn narrower than the same period a year ago. The Office for Budget Responsibility is playing this down, arguing that timing effects and revisions could easily scupper the improvement. For this reason we expect a smaller improvement in the July budget balance relative to a year ago than has been the case on average over recent months.

Euro area PMIs, August flash (Thursday): We expect the euro area composite PMI for August to decrease to 54.1 from 54.3 in July. At the sector level, we expect the regional manufacturing PMI to dip to 54.9 from 55.1 and the services PMI to drop to 54.0 from 54.2. Concerns about the escalation in the world trade dispute should have a negative impact on manufacturing activity. On top of that, the Turkish crisis should also hurt sentiment, given that the exposure of some European banks to Turkish assets is large.  Our forecast for August’s flash PMI reading would be consistent with euro area GDP growth of around 0.4% q-o-q in Q3 2018."