Fade the ISM manufacturing PMI weakness

The Daily Shot: 04-Mar-24
The United States
Canada
The Eurozone
Europe
Japan
Asia-Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Credit
Rates
Global Developments
Food for Thought



 

The United States

1. The ISM manufacturing PMI unexpectedly moved deeper into contraction territory last month, …
 

 
… dragged lower by inventories and employment.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 

 
However, a similar report from S&P Global paints a very different picture.
 

 
Why such a disconnect? The ISM data tends to concentrate on larger multinationals, while S&P Global surveys encompass a more representative mix of companies across various sizes.
 
Amid slower growth in China and Europe, multinationals are encountering more obstacles compared to domestic industrial companies. Shares of small- and mid-cap industrials have outpaced both their benchmarks and larger-cap counterparts. The ISM manufacturing PMI weakness, therefore, is not representative of the broader US economic activity.
 

 

 
Moreover, leading indicators continue to signal stronger US manufacturing activity.
 
Source: BofA Global Research  
 
Here is the ratio of cyclical to defensive sectors.
 

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2. US construction spending declined for the first time in 13 months in January.
 

 
Source: Reuters   Read full article  
 
Private construction spending edged higher.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The weakness was in public construction expenditures, which was partly attributed to unfavorable weather conditions.
 

 
Manufacturing construction spending continues to climb.
 

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3. The updated consumer sentiment from the University of Michigan registered an unexpected decline, …
 

 

 
… indicating a weakening in sentiment during the latter half of February.
 
Source: @economics   Read full article  
 
Consumers are upbeat on longer-term home price appreciation.
 

 
Separately, higher-income households are more concerned about the political environment, while lower-income households are concerned about their ability to pay rent/mortgages.
 
Source: Morgan Stanley Research  

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4. Automobile sales saw an uptick last month, rebounding from a downturn in January.
 


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Canada

1. Factory activity has almost stabilized, according to the February PMI report.
 

 
2. Inventories look bloated.
 
Source: Capital Economics  
 
3. The TSX Venture Composite Index (microcaps) is holding support with improving momentum and breadth.
 
Source: Aazan Habib, Paradigm Capital  


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The Eurozone

1. Euro-area inflation is moderating, but the February figure was above forecasts.
 

 
Food inflation is falling quickly.
 

 
Services inflation has been elevated.
 

 
The structural elements of inflation within the euro area are expected to require a more extended period to decelerate.
 
Source: Simon White, Bloomberg Markets Live Blog  

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2. The PMI reports show manufacturing improvement last month.
 
The Netherlands (stabilizing):
 

 
Italy (still in contraction, but improving):
 
Source: S&P Global PMI  
 
Spain (growing again):
 
Source: S&P Global PMI  
 
Greece (accelerating):
 
Source: S&P Global PMI  

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3. Euro area credit conditions are improving.
 
Source: Deutsche Bank Research  


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Europe

1. The slump in Sweden’s factory activity continues to ease.
 

 
2. Central European manufacturing hubs report ongoing contraction.
 
Poland:
 
Source: S&P Global PMI  
 
Czech Republic:
 
Source: S&P Global PMI  

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3. European stocks have been climbing despite higher bond yields.
 
Source: @TheTerminal, Bloomberg Finance L.P.; h/t @NoorAlAli  


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Japan

1. Japan’s capital expenditure witnessed an unexpected surge last quarter, indicating the potential for an upward revision in GDP.
 

 
Source: The Mainichi   Read full article  

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2. TOPIX EPS growth estimates are surpassing those of other markets.
 
Source: Goldman Sachs; @MikeZaccardi  


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Asia-Pacific

1. Let’s begin with South Korea.
 
Industrial production continues to improve.
 

 
The trade balance topped expectations.
 

 
Manufacturing activity grew at a slower pace last month.
 
Source: S&P Global PMI  
 
South Korea faces demographic challenges.
 
Source: Reuters   Read full article  

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2. Next, we have some updates on Australia.
 
Inflation eased further last month, according to an estimate from the Melbourne Institute.
 

 
Building approvals for private-sector houses tumbled in January.
 

 
Job openings are trending lower.
 

 
Corporate operating profits jumped last quarter.
 


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China

1. Beijing has stabilized the equity market.
 
Source: Goldman Sachs; @MikeZaccardi  
 
2. Economists continue to downgrade their forecasts for China’s inflation this year.
 

 
3. Here is a look at China’s investment in solar and wind energy.
 
Source: Gavekal Research  


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Emerging Markets

1. Let’s run through some manufacturing PMI reports for February.
 
Mexico (growth improved):
 
Source: S&P Global PMI  
 
Turkey (back in growth territory):
 
Source: S&P Global PMI  
 
Romania (struggling):
 
Source: S&P Global PMI  
 
South Africa (back in expansion mode):
 

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2. Brazil’s economic growth stalled last quarter.
 

 
Source: @economics   Read full article  

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3. EM currencies have traded in a tight range relative to the DM-ex US currency basket over the past year.
 
Source: MRB Partners  
 
4. EM sovereign bonds continue to outperform US bonds as more central banks cut rates. (2 charts)
 
Source: MarketDesk Research  
 
Source: MarketDesk Research  


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Cryptocurrency

1. Bitcoin ETFs’ AUM is surging (2 charts).
 
Source: @business   Read full article  
 
Source: Deutsche Bank Research  

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2. Bitcoin trades like a very leveraged Nasdaq 100 instrument.
 
Source: @5thrule   Read full article  


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Commodities

1. Shares of lithium miners and battery manufacturers are rebounding.
 

 
2. GLD (largest gold ETN) is at resistance.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
3. Allocations to commodities have been depressed over the past decade.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
4. US wheat futures are under pressure.
 

 
5. Speculative accounts continue to press their bets against the soy complex.
 

 
6. Traders are boosting their bets on cotton.
 


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Energy

1. OPEC+ extended its oil output cuts.
 
Source: Reuters   Read full article  
 
NYMEX crude hit the highest level since November.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. The US oil rig count has been moving higher.
 

 
3. US natural gas prices have declined for four consecutive months.
 


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Equities

1. It’s been over half a century since the S&P 500 was up 16 out of 18 weeks.
 

 
2. Fund inflows remain robust, …
 
Source: Deutsche Bank Research  
 
… with flows into tech funds reaching extreme levels.
 
Source: Deutsche Bank Research  
 
Passive fund assets have overtaken active funds.
 
Source: @financialtimes   Read full article  

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3. Will we see a breakout in the Russell 2000 index?
 

 
Positioning has been improving.
 
Source: Deutsche Bank Research  

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4. Companies with low tax rates have been outperforming.
 

 
Here is a look at low- and high-tax sectors.
 
Source: @markets   Read full article  

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5. Prior periods of extreme market concentration have preceded significant drawdowns.
 
Source: Morningstar   Read full article  
 
6. The S&P 500 2024 EPS estimates are holding up well.
 
Source: BofA Global Research; @MikeZaccardi  
 
7. Japan and China sold a lot of US shares last year.
 
Source: @markets   Read full article  
 
8. Teens are getting into stock investing/trading. Custodial accounts for minors at brokerages surged last year.
 
Source: @GunjanJS, @WSJmarkets, @hannahmiao_   Read full article  


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Credit

1. New York Community Bancorp’s stock and bonds were hammered again on Friday.
 

 
Source: CNBC   Read full article  

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2. US high-yield retail funds saw outflows last week, halting a long streak of inflows.
 
Source: PitchBook  
 
3. Slower corporate bond sales this month?
 
Source: Bloomberg Law   Read full article  
 
4. CLO issuance picked up last month.
 
Source: PitchBook  


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Rates

1. Short-term Treasury yields declined on Friday after Fed’s Waller suggested that the US central bank should hold a higher proportion of shorter-dated paper.
 

 
2. Short positioning in the 10-year Treasury futures is crowded as traders pile into the cash-futures arb trades.
 
Source: Longview Economics  


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Global Developments

1. The dollar rose as markets rapidly scaled back US rate cut expectations.
 
Source: Longview Economics  
 
The dollar appears overvalued, which could indicate a period of weakness ahead.
 
Source: BCA Research  

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2. Equities, oil, and the dollar rose in February, while sovereign bonds lost ground.
 
Source: Deutsche Bank Research  
 
3. In the US and UK, domestic demand has risen faster than real GDP (a proxy for aggregate supply) since just before the pandemic, while the opposite is true for the Euro area. This suggests it could be harder for the Fed and BoE to get inflation closer to target than the ECB.
 
Source: Deutsche Bank Research  


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Food for Thought

1. WFH is here to stay.
 
Source: @I_Am_NickBloom, @ESRC   Read full article   Further reading  
 
2. People killed by police in 2023:
 
Source: Statista  
 
3. Countries where same-sex marriage is legal (color indicates the year it became legal):
 
Source: Statista  
 
4. Percentage of fatal crashes that involved speeding:
 
Source: The Fitch Law Firm  
 
5. Homeownership rates:
 
Source: @axios   Read full article  
 
6. Food insecurity:
 
Source: USAFacts  
 
7. Interest in theatrical re-releases and reasons for avoiding movies in theaters:
 
Source: @CivicScience   Read full article  

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