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Brexit Will Overshadow Economic Data This Week

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Brexit will overshadow economic data this week

We do have some important economic data this week—personal income and spending, the third revision to first quarter GDP, and construction spending. That said, Brexit completely changed markets’ focus for the near term. The Fed probably isn’t going to throw gasoline on the fire and raise rates in the middle of the Market’s adjustment. That means interest rates are probably going lower over the near and medium term. This is good news for builders and mortgage REITs.

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Economic data this week

Monday, June 27:

  • trade balance
  • Markit US Services PMI (purchasing managers’ index)
  • Markit US Composite PMI
  • Dallas Fed

Tuesday, June 28:

  • GDP (Q1, third revision)
  • personal consumption
  • GDP price index
  • core PCE
  • Case-Shiller Home Price Index
  • consumer confidence
  • Richmond Fed

Wednesday, June 29:

  • Mortgage Bankers Association mortgage applications
  • personal income
  • personal spending
  • pending home sales

Thursday, June 30:

  • initial jobless claims
  • Bloomberg consumer comfort index
  • Chicago PMI

Friday, July 1:

  • construction spending
  • ISM Manufacturing

Implications for mortgage REITs

REITs such as Annaly Capital Management (NLY) and American Capital Agency (AGNC) will likely focus on data that will move the bond market. Given the new interest rate backdrop, economic data probably won’t play that big of a role in bond market movements, at least for the near term. Inflation data will probably become the most important indicators, not “economic strength” indicators. In other words, a strong jobs report may not bring out the bond bears, but a 2%+ core PCE print will. Investors who want to bet on interest rates can look at the iShares 20+ Year Treasury Bond ETF (TLT).

Impact on homebuilders

Homebuilders such as PulteGroup (PHM) and CalAtlantic Group (CAA) will pay the most attention to the Case-Shiller Home Price Index and pending home sales. For builders, Brexit is generally good news in that it makes homebuying even more affordable. The seasonal uptick for the homebuilding sector is in full swing. Investors can get access to the homebuilding sector through the SPDR S&P Homebuilders ETF (XHB).

In the next part of this series, we’ll look at last week’s movements in bond markets.

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