Tuesday, April 4, 2023

Morning Note: Sweet and Sour

Chatting with a buddy yesterday who works in the shipping space, I asked about the recent increase in heavy truck sales, which, as I stated in last week's economic update, flies in the face of our general recessionary outlook... This was after he explained to me that his world is unusually/concerningly quiet of late... I.e., they did not see remotely the quarter-end activity that they normally do... With regard to heavy truck sales, he surmised that it reflects the aftermath of the lack of supply around the pandemic craze, and now supply finally reaching the market.

Which jibes with my highlight below from Peter Boockvar's take on the latest auto sales numbers:

"Auto sales for March came in above the estimate at 14.82mm at a SAAR. The forecast was 14.5mm and compares with 14.89mm in February. There are a few inputs here. One is more shipments to dealers as inventories continue to normalize. Second, less vehicles are now selling over MSRP (thus a weird way of discounting compared to what we’ve seen the past few years) and third we’re seeing bigger fleet sales because of more cars being able to be delivered. The challenges of affordability are still with us however."

Yesterday's ISM Manufacturing Survey release for March was anything but inspiring.

Here's from the report:   emphasis mine...

"The U.S. manufacturing sector contracted in March, as the Manufacturing PMI® registered 46.3 percent, 1.4 percentage points lower than the reading of 47.7 percent recorded in February. “This is the fifth month of contraction and continuation of a downward trend that began in June 2022. Of the five subindexes that directly factor into the Manufacturing PMI®, none were in growth territory. This month, the PMI® registered its lowest reading since May 2020 (43.5 percent). Of the six biggest manufacturing industries, two (Petroleum & Coal Products; and Machinery) registered growth in March. The Production Index logged a fourth month in contraction territory. None of the 10 subindexes were positive for the period,” says Fiore. A reading above 50 percent indicates that the manufacturing sector is generally expanding; below 50 percent indicates that it is generally contracting.

A Manufacturing PMI® above 48.7 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the March Manufacturing PMI® indicates the overall economy contracted in March for a fourth consecutive month after 30 straight months of expansion. “The past relationship between the Manufacturing PMI® and the overall economy indicates that the March reading (46.3 percent) corresponds to a change of minus-0.9 percent in real gross domestic product (GDP) on an annualized basis,” says Fiore."

You can see why, even in the face of a rising stock market of late, we're sticking with our cautious economic outlook.

Speaking of the stock market, clearly, the bulls are not shaken by the latest data... Which would be the Pavlovian response to the notion that sweet Fed policy for markets always follows sour data... And that makes sense, except that is -- as I illustrated in a recent video presentation -- when we're in recession... This, in that instance, would be your classic "bull trap" (investors rush in based on sketchy narrative, only to, sadly, be ultimately caught by an opposing reality).

As for Sunday's surprise OPEC production cut; yes, of course, it reflects concern over the state of the global economy, and, therefore, anticipated weaker oil demand going forward.

Stay tuned...

Asian stocks rallied again overnight, with 12 of the 16 markets we track closing higher.

Europe's green nearly across the board so far this morning, with 18 of the 19 bourses we follow trading up as I type.

US equity averages are mixed to start the session: Dow down 23 points (0.07%), SP500 up 0.05%, SP500 Equal Weight up 0.18%, Nasdaq 100 up 0.07%, Nasdaq Comp up 0.07%, Russell 2000 down 0.23%.

The VIX sits at 18.94 up 2.10%.

Oil futures are up 1.03%, gold's up 0.21%, silver's up 0.35%, copper futures are down 1.00% and the ag complex (DBA) is up 0.07%.

The 10-year treasury is down (yield up) and the dollar is down 0.09%.

Among our 36 core positions (excluding options hedges, cash and money market funds), 15 -- led by AT&T, EWW (Mexico equities), JNJ, Amazon and XLC (communication stocks) -- are in the green so far this morning... The losers are being led lower by Albemarle, XME (metals miners), URNM (uranium miners), MP Materials and DBB (base metals futures).

"...we are living for an abstraction that has not yet come to be, and we don’t know what really is."  --Alan Watts.

Have a great day!

No comments:

Post a Comment