Big data today is July durables

Outlook:

The big data today is July durables, expected up 5.6% m/m after 1.7% in June, led by big airplane orders. We also get the Conference Board consumer confidence index for Aug, expected at 88.8 from 90.9 in July. We say Case-Shiller could end up being more interest-ing and influential than durables, backward looking though it may be. It’s forecast up 8.1% y/y in June from 9.4% in May, which seems a negative. Also, yesterday July new home sales fell 2.4% to 412,000 annualized, less than forecast, although the two earlier months were revised up. New home supply rose 4.1% to the highest since Aug 2010, 205,000 units or 6 months of supply. The median new home price fell 3.7% to $269,800 and is up a measly 2.9% y/y.

On this data, the housing market is not all that bright. Even with mortgage rates ultra-low, sales are tepid and prices are no longer rising at an impressive pace. You can bet your bottom dollar that Yellen and the rest of the Feds are watching the housing market. Low-quality job growth and stagnating wages do not a robust housing recovery make.

We could be going into next week’s big data with a discouraged view of the US recovery. Next Thurs-day is the ECB policy meeting and next Friday is nonfarm payrolls. Some folks expect Draghi to start prodding members to goose supply and demand right away at the next meeting, but this is not consistent with what we know about the ECB—it’s a heel-dragger. Draghi says we have to wait for LTRO and the banks tests, among other outcomes, and only if those fail will we hear about QE again.

How will the market respond if Draghi fails to repeat what the market sees as a promise of QE? You might think the absence of talk about QE would push the euro up. But in the topsy-turvy world of FX market expectations, confidence in the ECB resides in promises of activism. The absence of activism is a negative. The promise has to suffice, just as with “whatever it takes.” Remember that the ECB did not actually buy any Spanish sovereign paper at the time of the crisis in 2012 (or since). The words alone did the job. Therefore, the market wants words. Draghi can fill the gap with another deposit rate cut or a program of asset purchases—now there’s a murky subject—but the world want to hear about QE.

By the time payrolls comes around, we will all be exhausted from speculation about the ECB. A reading over 200,000 is to be expected, but unless we see something else interesting, like the participation rate, the numbers are not likely to sway Yellen. That leaves the EUR/USD ball in Draghi’s court.

Geopolitical events are barely visible in the FX market so far. We get the occasional rise in the yen and Swiss franc on a burst of fear, but on the whole, the focus is on diverging economic performance and yields. (Some analysts note the Swiss National Bank is about to get its mettle tested again and soon, but nobody lacks confidence in SNB resolve.) What we are not seeing is a response to the US probably bombing ISIS insurgents in Syria.

All last week and over the weekend we had strong statements from officials that ISIS is the worst threat anyone has faced since the Mongol hordes and a direct threat to the US, and Something Must Be Done. Then a baffling silence. What is the US policy? It would be nice to think the Saudis and others would pull up their socks and do the job, but realistically, the regional governments are incompetent and gut-less. The US has to do it. Everyone thinks healthcare is the Obama legacy, but instead it could well be starting a war with a non-state. The only parallel is, perhaps, going after the Barbary pirates in the 18th century. Wow.

FX traders are a bloodthirsty lot. The dollar always goes up when the US does something macho and military, especially if we win. The interesting thing will be to see who joins after a first (or second) vic-tory.

We may think that a reduction in geopolitical tensions on a good military outcome would take away the flight-to-safety support for the dollar, but the dollar still has relative growth and the eventual rate hike. Aside from the normal pullbacks and in the absence of a financial stability crisis, the dollar looks set to keep going up—just not, probably, today.

Note to Readers: We will take off this Thursday and Friday, Aug 28 and 29. These dates precede Labor Day on Monday, Sept 1, which is a national holiday in the US. There will be no reports on Thurs-day, Friday or Monday. We return Tuesday, Sept 2.