Sentiment Higher Before Personal Income and Outlays

The MorningSnapshot
June 27, 2013

Yesterday’s Wrap-Up
It was another day of ‘bad news equals good news,’ even after sentiment improved overnight as concerns regarding Chinese credit markets eased. U.S. GDP figures were clearly a miss, and yet equities moved higher, with the S&P 500 closing up nearly +1% and Europe experienced its biggest two-day rally in 11 months. The third of three 1Q annualized growth estimates came in at 1.8%, revised down from 2.4% and compared with the median estimate of 2.4%. Personal consumption was revised down from 3.4% to 2.6%; estimates called for the figure to remain 3.4%. Clearly, both figures were disappointments, but stocks move higher on the idea that the Fed will keep its asset purchases at $85B per month for the foreseeable future. Even the ever so hawkish Fed Reserve Bank of Richmond President Jeffrey Lacker said the central bank isn’t close to trimming its $3.47 trillion balance sheet and forecast “a couple more years of sluggish growth.” Treasuries gained, with yields on tens falling -6.54bps to 2.543%, and the dollar index rose +0.45%. Gold fell -3.55% to below $1,230, while WTI crude rose +0.29%.

Morning Commentary
Sentiment is higher this morning before U.S. personal income and outlay figures are released, with most risk currencies trading higher overnight, consistent with rising stocks, commodities, and tightening EU sovereign bond spreads to Europe. The dollar and yen are underperforming the rest of the FX market, with the dollar index trading down by -0.15%, while the euro is outperforming on better than anticipated German unemployment figures and the EU agreement on how to handle failing banks. Most commodities are moving higher this morning, with crude oil up +0.3% and copper just slightly higher on the day. S&P 500 futures are higher by nearly +0.5%, while the Euro Stoxx 50 is down -0.2%.

Today’s Economic Data Lineup (EST)
8:30am: Personal Income, May, est. 0.2% (prior 0.0%)
8:30am: Personal Spending, May, est. 0.3% (prior -0.2%)
8:30am: PCE Deflator M/m, May, est. 0.1% (prior -0.3%)
8:30am: PCE Deflator Y/y, May, est. 1.1% (prior 0.7%)
8:30am: PCE Core M/m, May, est. 0.1% (prior 0.0%)
8:30am: PCE Core Y/y, May, est. 1.1% (prior 1.1%)
8:30am: Initial Jobless Claims, June 22, est. 345k (prior 354k)
8:30am: Continuing Claims, June 15, est. 2.953m (prior 2.95m)
9:45am:  Bloomberg Consumer Comfort, June 23 (prior -29.4)
10:00am: Pending Home Sales M/m, May, est. 1.0%  (prior 0.3%)
10:00am: Pending Home Sales Y/y, May, est. 8.3% (prior 13.9%)
10:00am: Fed’s Dudley speaks on labor market in New York
10:30am: Fed’s Powell speaks on monetary policy in Washington
11:00 am: Kansas City Fed Manufacturing Activity, June, est. 3 (prior 2)
11:00am: Fed to purchase $4.25b-$5.25b debt in in 2017-2018 sector
12:30pm: Fed’s Lockhart speaks on economy in Marietta, Ga.
1:00pm: U.S. to sell $29b 7Y notes

North America

  • From Bloomberg: Janet Yellen, the favorite to lead the Federal Reserve in a survey of economists, would need to overcome 100 years of history in which the central bank’s No. 2 official has never risen to the top job. Read the fully story here.
  • An auction of $35B of 5yr notes yesterday drew the strongest demand in more than three years from indirect bidders who purchased 53% of the notes, the most since Jan 2010 and compared with the average of 41.7% in the past ten sales.


  • EU officials finally came to an agreement on how to manage failing banks after seven hours of emergency negotiations in Brussels that wrapped up in the wee hours of the morning, settling on guidelines for assigning losses to private creditors and regulating public assistance. In addition, they spelled out when governments are able to step in and established a role for the ESM, the euro-zone’s €500B ‘firewall’ fund. Now that EU nations have agreed among themselves, they can begin talks with the European Parliament on a final version of the bill.
  • Economic confidence within the euro area improved more than forecast in June, with an index of executive and consumer sentiment rising to 91.3 in June from 89.5 in the prior month and compared with the median projection for 90.4.
  • German unemployment fell unexpectedly in June, with the number of unemployed dropping by a seasonally adjusted -12K to 2.94M after a revised gain of +17K in May; economists had predicted a gain of 8K. The adjusted jobless rate was 6.8%, matching a 20 year low registered for most of last year, while the prior month was revised down from 6.9% to 6.8%.
  • Disposable income in the U.K. plunged by the most in more than 25 years during the 1Q, with real household disposable incomes falling -1.7% from the previous three months, conflicting with a separate report in which U.K. GDP matched the median estimate of 0.3%.


  • India’s current account deficit narrowed less than forecast, with the shortfall coming in at $18.1B in the 1Q, compared with a revised $31.9B in the prior period. The median estimate of economists called for a gap of $21B. The deficit last quarter was 3.6$ of GDP, down from an unprecedented 6.7% in October to December. Today’s surprise release was likely aimed at calming nerves after the rupee sank to an all-time low yesterday.
  • South Korean President Park Geun Hye arrived in Beijing today with the largest ever business delegation, signaling just how important she believes China is to boosting her nation’s economy. Park will be joined by 71 business executives during her four-day visit.

“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack in will.”
-Vince Lombardi


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