US Eco Data Rather Thin This Week

By FX Empire Analyst - Barry Norman
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Last week, most US economic data surprised on the weaker side of expectations with especially the retail sales disappointing. Signs are now increasing that also the US economy is heading for a significant slowdown. This week, the focus will be on the FOMC meeting. Will the Fed act proactively to support the US economy?  Well know the answer to this question on Wednesday afternoon. Markets are expecting some type of aggressive action from the Feds, and the Obama Administration needs to pull a rabbit out of their hat, to secure re-election.

The eco calendar remains rather thin this week with only some housing data, the weekly jobless claims and Philadelphia Fed index. In April, US housing starts rose by 2.6% M/M to 717 000, equaling the 3.5 year high reached earlier this year. For May, the consensus is looking for a marginal increase by 0.4% M/M to 720 000, but we believe that the risks are on the downside of expectations. The weather was less favorable in May, while also labor market conditions are weakening again and credit conditions remain tight. Therefore we believe that the a downward surprise is not excluded. Nevertheless, a further increase in starts would bring them again to the highest level since October 2008. In April, US building permits dropped sharply after reaching their highest level since end 2008. For April, a pick up from 723 000 to 730 000 is forecast. We have no strong reasons to distance ourselves from the consensus. The final report released just a few hours ago, showed that housing starts were slightly under forecast while building permits were above forecast, thus cancelling the effects as markets perceived them as neutral.

Finally regarding the US housing market, the existing home sales will be published on Thursday. After rising by 3.4% M/M to 4.62 million in April, existing home sales are forecast to have dropped by 1.3% M/M in May, to a total level of 4.56 million. For the existing home sales we believe that the risks are also on the downside of expectations after pending home sales dropped significantly in April. After an improvement in US housing market conditions since the second half of last year, it will be interesting to see how the housing market weathers a new slowdown in activity.

Besides the housing data, also the Philadelphia Fed index will be interesting. Last week, the NY Fed manufacturing index weakened sharply after a rebound in May. The Philly Fed index, on the contrary, weakened already sharply in May, showing a drop from 8.50 to -5.80. For June, a pick up to 0 is forecast. While we believe that a slight increase is not excluded, we are somewhat more pessimistic and see risks for another downward surprise. 

Finally, US jobless claims are forecast to show a marginal drop in the week ended the 16th  of June. Over the previous weeks, US initial jobless claims edged up again, which might be a further indication that the US labor market is weakening again. After an unexpected increase in the week ended the 9th of June, jobless claims are forecast to have dropped slightly, from 386 000 to 383 000. We continue to see upside risks as the momentum in the US labor market seems to have eased. 

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