Wednesday, July 7, 2021

Morning Note: An Unabashed Will to Spend Comes With Consequences...

We looked at the following graph in last weekend's video update:

The yellow line representing the overall score for the ISM Manufacturing Purchasing Managers' Survey/Index (released last week), the white being its prices paid component.

Yesterday we got the results from the Services sector survey.

Here's that graph (blue = overall score, white = prices paid):

And here's the report's featured commentary from the survey participants:
“Our restaurants are quickly — maybe too quickly — returning to 2019 sales levels. Strong consumer demand for dining out is clearly evident as COVID-19 restrictions ease, but the challenges are supply chain outages, logistics delays and employee- and management-staffing constraints. Some locations cannot open for business or (have) limited hours, as we cannot staff the restaurant to meet consumer demand.” [Accommodation & Food Services]
“Severe supply chain disruptions and inflation are continuing in the marketplace, in all sectors.” [Arts, Entertainment & Recreation]
“COVID-19 continues to cause troubles for all of our deliveries, as well as short supply a lot of materials. (Shortages of) lumber, copper, and steel continue, which is driving up pricing and lead times.” [Construction]
“The declining positive test rates for COVID-19 is already having a significant impact, as virtually all aspects of our operations are picking up rapidly. The summer is normally the slow period, as limited teaching is taking place, but this year, preparations for the fall semester are already underway.” [Educational Services]
“New business is actively trending up locally, nationally and internationally.” [Finance & Insurance]
“We continue to see a high (patient) census as COVID-19 restrictions are eased, but the volumes are not pandemic related. There are more patients now because they wouldn’t or couldn’t get treatment because of restrictions on (non-COVID-19) care or personal cautiousness.” [Health Care & Social Assistance]
“Employees globally are returning to the office where possible. We expect to have most employees in the office starting in September.” [Information]
“Business conditions continue to rebound; however, like everywhere, the challenges in the supply chain are numerous. We continue to see cost increases, delayed shipments, pushed-out lead times, and no clarity as to when predictive balance returns to this market.” [Retail Trade]
“Labor market remains tight, and wages have risen at an unprecedented rate. We are expecting a long-term effect on pricing of services.” [Transportation & Warehousing]
“Overall business activity in the month has been strong. We are seeing increased orders and slight improvements in backlogs. The primary headwinds this month continue to be very expensive ocean freight rates, increasing business costs and increasing raw-materials costs. The top line is not outrunning expenses.” [Wholesale Trade]
“Starting to see a lot of commodity-price increases for chemicals, acidizing and cementing. This is driven by product cost increases stemming from low production from plants.” [Mining]
Per the above, there appeared to be virtually no relief last month in terms of inflation. That relief will no doubt come as more production comes back on line. The bigger question is, will inflation settle back into the trend of the past several decades? Amid the most accommodating monetary policy on modern record, and the unabashed will for government spending these days, not to mention the other systemic factors we've outlined plenty herein, our present view is no. We see structurally rising inflation being a thing in the years to come...

Asian equities leaned red overnight, with 9 of the 16 markets we track closing lower.

Europe's green nearly across the board so far this morning, with all but 1 of the 19 bourses we follow trading higher.

U.S. major averages are mostly higher as I type as well: Dow up 76 points (0.22%), SP500 up 0.29%, SP500 Equal Weight up 0.17%, Nasdaq 100 up 0.42%, Nasdaq Comp up 0.44%, Russell 2000 down 0.02%.

The VIX (SP500 implied volatility) is down 1.22%. VXN (Nasdaq 100 i.v.) is up 0.48%.

Oil futures are down 0.12%, gold's up 0.56%, silver's up 0.64%, copper futures are up 2.00% and the ag complex is down 0.11%.

The 10-year treasury is up (yield down) and the dollar is up 0.10%.

Led by solar stocks, metals miners, wind stocks, KRBN (carbon credits) and base metals futures -- but dragged by energy stocks, uranium miners, Viacom, bank stocks and Verizon -- our core mix is up 0.30% to start the session.

Words to live and invest by, from Will and Ariel Durant's must-read classic, The Lessons of History:
"We must operate with partial knowledge, and be provisionally content with probabilities; in history, as in science and politics, relativity rules, and all formulas should be suspect.
“History smiles at all attempts to force its flow into theoretical patterns or logical grooves; it plays havoc with our generalizations, breaks all our rules; history is baroque.” Perhaps, within these limits, we can learn enough from history to bear reality patiently, and to respect one another’s delusions."

Have a great day!

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