2nd Quarter GDP, Treasury Supply, Housing Sales and Tariff Talk Top Week’s Highlights

Jul 23, 2018
Car unloaded at port

2nd Quarter GDP, Home Sales and Treasury Supply in the Spotlight

This week the usual trade and geopolitical concerns will top the headlines, but 2nd quarter GDP, June home sales and Treasury supply will also vie for attention. Last week the president dialed up the pressure on the Fed to ease up on rate increases. His comments from late last week spurred a bit of selling on the long-end and reversed some earlier dollar strength. We think, however, the comments will add to curve flattening pressure as the Fed is likely to resist appearances of buckling. The first estimate of 2nd quarter GDP is due Friday and it’s expected to be strong at 4.2% QoQ annualized. The early estimates for 3rd and 4th quarter GDP are running in the 2.7% to 2.8% range, with lower 2019 estimates, so the 4-handle 2nd quarter estimate looks to be a one-off event.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


Top Events of the Week Top 5 Events for the Week

JULY 23–27,  2018

1. Second Quarter GDP — Friday
2. Trade War Developments — All Week
3. Existing Home Sales — Monday
4. New Home Sales — Wednesday
5. U. of Michigan Consumer Sentiment — Friday



1.  First Estimate of Second Quarter GDP — Friday

The first estimate of second quarter GDP will be released Friday with the Bloomberg consensus estimate calling for an outsized 4.2% print. The Atlanta Fed’s GDPNow model is expecting even better at 4.5%. The increase in growth compared to recent quarters is expected to be driven by a rebound in nearly all components with personal consumption leading the charge with an 3.0% print versus 0.9% in the first quarter when GDP printed at 2.0%.  The strong second quarter estimate, however, looks to be more a one-hit wonder with estimates for third and fourth quarter dipping back to the more typical 2.7% to 2.8% range and even lower in 2019.


2.  Trade War Developments — All Week

In this week’s installment of trade war machinations, the issue of auto tariffs is expected to be high on the agenda Wednesday at the White House when European Commission President Jean-Claude Juncker comes calling. Last Wednesday, the president threatened 'tremendous retribution' against the E.U. specifically mentioning auto tariffs, if the meeting this week doesn’t yield what he considers a fair auto trade deal. Meanwhile, the E.U. is preparing a list of American goods to hit with protective measures in case this week’s meeting fails to persuade President Trump not to raise car tariffs. Also, with the president now actively weighing in on monetary policy that too can and will impact  Treasuries. If he continues to not-so-subtly apply pressure to the Fed, we think the consequence will be for the Fed to dig in to its hawkish tendencies lest they be called out for buckling under the pressure. That will only add to flattening pressure despite the initial market reaction of selling the long-end.


3.  Existing Home Sales — Monday

The housing market has had some mixed releases lately with June New Home Starts missing badly a week ago so the pair of existing and new home sales figures will be watched closely this week. Existing home sales account for nearly 90% of the market and give us the broadest view of market health but with data based on closings it can be a bit dated versus new and pending home sales which are based on contract signings. For June, existing home sales are projected to increase a skinny 0.2% to 5.45 million annualized versus 5.43 million in May. The average over the past year has been 5.49 million annualized so slightly below -average print with a minimal sequential increase expected.


4.  New Home Sales — Wednesday

This week also brings New Home Sales for June. Sales are expected to decrease –2.9% to 669 thousand units annualized versus 689 thousand the prior month. The average over the past year has been 636 thousand so a beat against the yearly average but a slight decrease versus May results is expected.  If expectations come to pass it looks like sales are advancing slowly despite limited inventory and higher interest rates.


New & Existing Home Sales


5.  University of Michigan July Consumer Sentiment — Friday

The preliminary read on July consumer sentiment on Friday is expected to print at 97.1 matching May’s print.  The sentiment index has averaged 97.5 over the past year so a modest downtick against the average is expected. If the tariff rhetoric continues watch this series for any signs of flagging confidence. The survey also contains two inflation measures that are watched by the Fed. Consumers expect inflation over the next year to be 2.9% and the longer-run expectation (5-10 years) moderately lower at 2.4%. The 1yr expectation has been edging higher (1yr annual average 2.7%) but the longer-run annual average has been stable (2.5%). The Fed, however, will be sensitive if consumers start to ratchet-up inflation expectations and that could aid the quarterly rate hiking argument.




Technicals Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research




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