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Economic Week Ahead: U.S. Home Sales and Weekly Jobless Claims

Sales of existing and new U.S. homes are expected to show gains, while the Eurozone reports consumer confidence data

Monday: There are no major economic data releases on Monday or Tuesday.

Wednesday: Sales of previously owned homes are expected to have climbed 16.4% in June as parts of the U.S. economy continued to reopen. The National Association of Realtors said last month that a 9.7% sales slump in May reflected weaker contract signings in March and April, when the strictest shutdown measures were in place.

Thursday: New claims for unemployment insurance are expected to have held steady at 1.3 million for the second week in a row, as a surge of coronavirus cases across the U.S. has prompted some states to pause or roll back reopening plans. New weekly claims have steadily declined since hitting a high of 6.9 million at the end of March, though last week’s level was still well above the highest week on record before this year, which was 695,000 in 1982.
The European Commission is set to release its Eurozone consumer confidence survey for July. The measure which improved slightly in May and picked up even more in June, is expected to continue rising this month as the number of new Covid-19 infections continues to fall. An improvement in the sentiment gauge could be a sign that Europe’s success in tamping down the virus is also likely to pay economic dividends.

Friday: New-home sales in the U.S. are expected to have picked up 3.6% in June, a slowdown from May, when pent up demand lifted sales 16.6%. Sales plunged earlier this year as widespread lockdowns kept potential buyers at home, but record-low mortgage rates have lured some buyers off the sidelines.

Last week’s economic data and what does it mean?

China says its dollar-denominated exports, imports jumped in June, beating expectations of a decline

China’s dollar-denominated exports and imports rose in June, as restrictions eased and countries started to reopen their economies. The June customs data beat expectations of a decline, with exports posting a rise of 0.5% as compared with a year ago, and imports jumping 2.7% in the same period. It had been estimated that June exports contracted 1.5% from a year earlier, bouncing from a 3.3% decline in May. Imports were expected to fall 10.0% from last year, as compared with a drop of 16.7% in May.

China says its economy grew 3.2% in the second quarter this year, rebounding from coronavirus

China reported that the country’s economy grew by 3.2% in the second quarter of the year, compared to a year ago. Economists had expected gross domestic product to have grown modestly at 2.5% in the April to June quarter. It comes as lockdowns to contain the coronavirus outbreak in China eased, and as Beijing rolled out stimulus measures to prop up its economy.

Industrial production increases by 5.4% in June, beating the 4% increase expected

Total U.S. industrial production increased 5.4% in June, according to the Industrial Production and Capacity Utilization Report, released Wednesday by the Federal Reserve. However, it remained 10.9% below its pre-pandemic February level. For the second quarter as a whole, the index fell 42.6% at an annual rate, its largest quarterly decrease since the industrial sector retrenched after World War II. Manufacturing output climbed 7.2% in June, as all major industries posted increases. The largest gain of 105% was registered by motor vehicles and parts, while factory production elsewhere rose 3.9%. The major market groups posted broad-based gains in June, but each still remained below its pre-pandemic level.

U.S. retail sales rose 7.5% in June as stores reopened

U.S. consumers boosted spending at stores and auto dealerships in June for the second straight month as states reopened for business, but the recent increase in coronavirus cases could again damp job growth and retail spending. The U.S. Commerce Department said June retail sales increased a seasonally adjusted 7.5% on the month. Retail sales totalled US$524.3 billion in June, up from US$487.7 billion in May and nearly back to pre-pandemic levels. These gains in household spending reflect a mix of pent-up demand and U.S. government stimulus.

In conclusion

The S&P 500 and Dow rose 1.3% and 2.3% respectively last week for their third straight weekly advances. The NASDAQ in contrast recorded its first weekly loss in three weeks. The weakness in the NASDAQ being attributed to investors flocking into more beaten-up value names amid positive vaccine trial news. Investors talk about a rotation out of technology and into more ‘value’ oriented areas. The market will no doubt get a better handle on how corporate America is traveling as the reporting season gets into full swing in the weeks ahead. As the reports roll in, investors will be awash in data, and it can be difficult, especially in this uncertain economic environment, to identify the most telling numbers. The coronavirus pandemic has been a boon to some sectors, such as technology, while battering companies in the financial and energy industries. The U.S. earnings season poses a big test for investors and analysts, who say they are flying blind like never before.

Earnings season is a good time to not only assess the health of corporate America but also a chance to get a picture of the state of the consumer.

Consumer spending is the main driver of the U.S. economy, accounting for more than two-thirds of economic output, and retail sales account for about a quarter of all consumer spending. The recent surge in coronavirus infections a could again put the brakes on retail spending, as states pause or reverse reopening plans.

Coronavirus cases have been rising at an alarming rate. Data compiled by Johns Hopkins University showed more than 70,000 cases were confirmed on Saturday. That marks two straight days of at least 70,000 new infections confirmed.

There’s a lot on investors’ calendars over the coming weeks and months. The U.S. equities market remains resilient, despite the frightening rise in coronavirus cases and the increasing possibility that the U.S. economy might be forced to suffer a second shut down which could have a devastating effect on industry and corporate America.

The long-tail implications of the coronavirus and its impact on the U.S. economy remain significant and inherently unpredictable. Volatility is very likely to remain a daily event as the market moves on any breaking news. In the meantime the tug-a-war between looking past the COVID-19 pandemic and dealing with it as it unfolds becomes the dominant focus for investors. Over the coming weeks, greater long-term clarity on one or more of those factors should emerge.

P.S. Interestingly, gold closed above US$1,800 on a weekly basis for the first time since 2011 and technically the price is now well-positioned to make an attempt at the 2011 all-time high of US$1923.7 and perhaps move even higher. Some would argue that gold’s current strength reflects the massive uncertainty and concern that exists in the financial markets globally.

Authored by Kevin McKay – Research Associate at Bell Potter Securities, 20 July 2020
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