US: Fed minutes, durable goods and new home sales in focus – BMO CM

Sal Guatieri, Senior Economist at BMO Capital Markets, suggests that a pullback in mortgage applications and homebuilders’ activity suggests new home sales will retrace part of September’s 3%-plus advance.

Key Quotes

“Although Hurricane Matthew battered the Southeast coast, other regions enjoyed drier-than-usual conditions, and average temperatures were the warmest in over half a century. The fundamentals remain supportive for housing demand, including easing credit standards and falling unemployment, though the post-election increase in mortgage rates of almost half a percentage point bears close watching. Still, unless borrowing costs rise more materially, housing demand should remain near nine-year highs, as affordability is still healthy in most regions. Affordability is key for the all-important first-time buyer, whose share of resale activity just hit four-year highs (34%) as the leading edge of the millennial wave advances.”

“An expected rebound in aircraft and defence orders should lift durable goods orders 1.0% in October. Core capital goods orders likely rose more modestly (given a pullback in ISM orders) amid election-related uncertainty. Still, a fourth increase in five months would signal the first quarterly advance in business capex in more than a year.”

“The meeting minutes will be scrutinized for hints about the Fed’s willingness to tighten at the next meeting. The FOMC lowered the tightening bar in November by claiming that the case for raising rates had “continued to strengthen” and that only “some further evidence” of progress toward its objectives was needed to spur action. Yellen recently said "the economy is making very good progress toward our goals", likely clearing the final hurdle for a December move.”