It’s a slow day for economic news in Europe, so the moderately busy schedule for US numbers will grab the crowd’s attention with updates on new orders for durable goods and real estate prices through the Case-Shiller House Price Index. Meanwhile the 10-year Treasury yield deserves monitoring as a real-time proxy for assessing how the market’s pricing in the relatively upbeat US macro-economic profile compared with weaker projections for the Eurozone.
US: Durable Goods Orders (12:30 GMT) Today’s update on demand for manufactured goods in July will be a key factor this week for shaping the outlook for the US economy. The hard data for the US is particularly crucial these days as investors consider the implications of weaker numbers for Europe. With the US stock market (S&P 500) trading at or near a record high recently, equities are vulnerable to any bad economic or geopolitical news from abroad.
Today’s report on durable goods is projected to show that orders surged last month. The consensus forecast sees new orders accelerating with a red-hot 7.0% month-over-month increase compared with June’s 1.7% rise. If the prediction holds, July’s advance will translate into the best monthly comparison in more than three years.
The business investment component of today’s report — non-defence capital goods ex-aircraft orders — will also attract plenty of attention. This proxy for confidence in the business sector showed resilience in June with a monthly increase of 3.3% compared with a modest decline in May. The year-on-year trend for business investment also rebounded in the last release to a 3.5% rate compared with a flat performance previously.
If the crowd’s encouraging expectations for today’s figures prevail, we’ll have some hard data that suggests that the corporate sector is ramping up its spending plans, presumably on the assumption that economic growth in the US will survive any blowback from Europe. 
US: S&P Case-Shiller House Price Index (13:00 GMT) The latest run of housing data suggests that this crucial sector of the economy is strengthening after enduring a rough winter and spring. Although the July report on new home sales released yesterday showed demand slipping slightly, the year-on-year comparison perked up to a 12% gain — the largest increase since last November.
Last week brought even better news with a trio of bullish reports on builder confidence, new residential construction, and sharply higher existing home sales. The focus now turns to prices with today’s monthly release of S&P Case-Shiller data.
The consensus view is that the monthly comparison will reflect a round of relative stability with a modest increase of 0.1% for June. A comparatively stable number will be a welcome change after the previous release that witnessed a wild downward swing. Indeed, the monthly change (seasonally adjusted) for May dropped like a rock to post a slight decrease — the first decline in more than a year and a dramatic change from the recent run of robust rises.
The year-on-year trend has weakened too, with the last report reflecting a relatively soft 9.% rise (in unadjusted terms) in May from the year-earlier level. The consensus forecast calls for an even slower pace in today’s release: an increase of 8.4%, according to Econoday.com.
A moderating rate of growth for prices is hardly a problem at this stage. If the housing recovery is on a stronger footing, as recent data suggests, a slower pace of price increases looks like an incentive for would-be buyers.
In any case, a year-on-year 8.4% gain for prices in July for the Case-Shiller index looks like a reasonable projection, in part because that’s the annual rate for last month as previously reported by Clear Capital, a real estate consultancy. The uncertainty lies in interpreting the data. "Relatively speaking, a national yearly growth rate of 8.4% is not alarming, but it's the path by which we got there that is of concern,” said Clear Capital’s vice president of research and analytics in early August. “Today's annual rate is over three percentage points lower than it was at the start of the year, and recall that the summer is supposed to be the highlight of the housing cycle.”
The firm’s outlook for the next 18 months sees the national rate of price increases slowing further, to a mere 1.5% rate. By Clear Capital’s reckoning, “there will not be much cushion [for housing] for any sort of hiccup in the broader economy.”
The good news is that the broader economy continues to post moderate growth. Indeed, yesterday’s update of the Chicago Fed National Activity Index shows that economic activity picked up last month: output in July accelerated at its strongest pace since March. The bottom line is that the economy is still on track to provide support for the housing sector. As a result, Clear Capital’s concerns about the future look a bit overblown at the moment.
US: 10-Year Treasury Yield The US economy is showing few signs of weakness at present, but the bullish state of macro-economy hasn’t kept the benchmark yield on the 10-year note from trending lower. If interest rates were a straight reflection of the macro-economic outlook for the US, it’s likely that the 10-year yield would be higher, perhaps about 3.0%. Yet the current yield is 60 basis points lower at about 2.4%.
“Any potential catalyst that would lift yields higher will face headwinds from this flight out of Europe,” the director of fixed-income strategies at GMP Securities, Adrian Miller, told Bloomberg yesterday. Maybe so, but the question becomes this: when willl the risk-off bias that prevails outside the US have run its course for pushing Treasury yields lower? That’s a tricky bit of analysis for all the usual reasons, including the reality that the US dollar is the world’s reserve currency, so demand for Treasuries is only partly a reflection of domestic macro conditions in the US.
Part of the answer for deciding what comes next will be a function of the incoming data for the US labour market. Federal Reserve board of governors chair Janet Yellen last week explained that “if progress in the labour market continues to be more rapid than anticipated by the committee or if inflation moves up more rapidly than anticipated … then increases in the Federal fund rate target could come sooner than the committee currently expects and could be more rapid thereafter.”
There will be little new data on jobs released this week, however, other than the weekly release on jobless claims scheduled for Thursday. The big news arrives next week in a one-two punch: Automatic Data Processing’s estimate of private payrolls for August (due to be released on September 3), followed by the official non-farm payrolls data for last month on September 5.
In the meantime, watching the 10-year yield will be everyone’s favorite sport as the market digests the conflicting messages of strength and weakness flowing from the US and the Europe, respectively. 