Tuesday, October 4, 2022

Morning Note: China Oomph -- And -- Meh Manufacturing

In Saturday's video I made mention of "mum" being the word of late around China's economy-crippling zero-Covid policy.

Well, if we're looking for a visual that suggests maybe the policy is about to be abandoned, here it is:

Add in the likes of the following and we have the makings of something bullish as the world's #2 economy meanders into Q4:

Yesterday saw the release of the Institute for Supply Management's Manufacturing Survey for September. And while it wasn't horrible -- 50.9 denoted expansion for the month -- it certainly wasn't wonderful; that's the lowest read since May 2020.

What was nice to see was a decent number of inputs showing up under the "down in price" heading:

"Commodities Down in Price:

Aluminum (5); Diesel*; Freight* (2); High-Density Polyethylene (HDPE) Resin; Lumber — Hardwood; Lumber — Softwood; Methanol; Ocean Freight; Plastic Resins* (4); Polyethylene; Polypropylene (2); Steel (5); Steel — Carbon (3); Steel — Hot Rolled (5); Steel — Stainless* (2); and Steel Products (3)."

And while much of the data says bottlenecks are easing and, therefore, the supply of essential inputs is flowing, clearly, from the report's featured commentary, we've a ways yet to go:

"Supply chain issues for all electronic components and custom build-to-print materials are in short supply due to capacity and skilled labor shortages. Energy cost continues to negatively impact freight cost.” [Computer & Electronic Products]
“Concerns of global economic slowdown are growing, and (we are) experiencing some customers pulling back orders.” [Chemical Products]
“Production is steady, allowing reduction of backlog amidst slightly softened demand.” [Transportation Equipment]
“Almost all suppliers are experiencing lead times growth. It seems no one wants to keep inventory on hand anymore.” [Food, Beverage & Tobacco Products]
“Business is flat to down due to inflation and interest rates. Hard to find and keep employees due to wage increases by competitors.” [Fabricated Metal Products]
“Supply chain constraints on many items are still an issue; staffing on the production side continues to be a significant problem. In contrast, we have more stock than needed on some key items — specifically imports — and have begun reducing open purchase orders and decreasing extended forecasts on those items in order to bleed down inventory.” [Machinery]
"Business continues to be strong. Some commodities within the supply chain are starting to stabilize, while others are still causing disruption for production. Electrical and wiring components continue to cause significant issues. (We) cannot run as consistently as we would like.” [Electrical Equipment, Appliances & Components]
“Quotes and orders still strong; however, we are not able to accept any new orders for shipment (for the rest of) 2022 due to motor and electronic component shortages.” [Miscellaneous Manufacturing]
“The supply chain is still stressed, and it challenges our manufacturing plants for uptime. We have strong demand and need to run.” [Nonmetallic Mineral Products]
“Business is still strong; raw materials are becoming more available, and some raw materials prices are falling.” [Plastics & Rubber Products]

Yesterday delivered quite the rally in equities, as (per Saturday's video) the short-term setup called for. Of course sustainability is the question... Seasonality, sentiment and positioning favors the bulls heading into Q4... The Fed, however, continues to feed the bears.

Stay tuned...

Asian equities rallied overnight, with all but 1 of the markets we track closing higher.

Same for Europe so far this morning, with 18 of the 19 bourses we follow trading up as I type.

US stocks are rallying to start the session: Dow up 484 points (1.64%), SP500 up 1.92%, SP500 Equal Weight up 1.97%, Nasdaq 100 up 2.39%, Nasdaq Comp up 2.46%, Russell 2000 up 2.86%.

The VIX sits at 28.91, down 3.95%.

Oil futures are up 2.55%, gold's up 0.58%, silver's up 1.08%, copper futures are up 0.13% and the ag complex (DBA) is u 1.15%.

The 10-year treasury is up (yield down) and the dollar is down 0.72%

Among our 35 core positions (excluding options hedges, cash and short-term bond ETF), 34 -- led by Eurozone equities, Nokia, AMD, Sweden equities and our semiconductor ETF -- are in the green so far this morning. The one loser (and just barely) so far this morning is long-term treasury bonds.

"Getting the market right, from here on out, is as much about the politics and geopolitics as it is about valuations, interest rates, and earnings. And yet, our epistemic community of financial professionals has no real framework with which to navigate this new paradigm."

--Papic, Marko. Geopolitical Alpha  


Have a great day!

1 comment:

  1. Thanks for the updates. Supply chain should be easing. Market still has a lot of volatility from what I am seeing.