Weekly Bull/Bear Recap: Apr. 1-5, 2013
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
+ A healthy trend in U.S. truck sales signals underlying strength in heavy equipment industries:
- Manufacturing remains a strong source of growth as per Markit’s PMI, which printed 54.6 for March. New export orders surprised to the upside, signaling expansion in foreign orders, while order backlogs potend further strength ahead for the sector. The report mirrors strength in the February Factory Orders (ex-defense) indicator, which rose a strong 2.4%, reestablishing a strong uptrend.
- The housing recovery continues to show traction, evident by a strong construction spending report for February. YoY, overall construction rebounded to 7.9% vs. 6.1% in January.
+ Global economic activity is stabilizing:
- German factory orders over the past 3 months show a distinctive carving of a bottom and confirm improving data out of the Ifo survey. Furthermore, Italian and Spanish 10-yr yields quietly plunged (higher bond prices) over the week (see 3-month view), a sign that market participants have clearly overreacted with the Cyprus bailout. European credit markets are signaling that the coast is clear.
- Chinese Official and HSBC Manufacturing PMIs rose in March, the former rising to an 11-month high. Moreover, Non-manfacturing PMIs surge from 54.50 to 55.60 (official gauge) and from 52.1 to 54.3 (HSBC gauge). These results signal a stronger expansion taking place.
+ Stocks largely recover from triple-digit losses today despite a sub-par jobs report. The Fed is “Full Steam Ahead” with QE. The Fed will continue to aid the the recovery. Furthermore, today’s job report actually has some bright spots. Leading indicators of employment, such as temporary help employment and construction jobs, are indicating a strengthening job market and economy. “‘Jobs day’ chatter is irresistible but almost without content. Monthly jobs numbers provide imperfect portraits of the recent past, and they are very poor predictors of the labor market’s future.”
- Job creation slowed substantially in March (slowest in 9-months; Labor-force participation at 1979 levels), while corporate layoffs are 30% above year ago levels according to the Bureau of Labor Statistics and Challenger, Gray, & Christmas respectively. Moreover, an additional spike in Jobless Claims, now at 385K, and a 3rd consecutive decline in the Rasmussen Employment Index further confirms that rose-shaded glasses worn by economists need to be put away quickly. The U.S. economy is extremely vulnerable to further fiscal contraction and a weakening global economy.
- Markit’s rosy view of U.S. manufacturing isn’t confirmed by the Institute of Supply Management, which reported a significant weakening in growth in March. The index fell from 54.3 to 51.3.
- On the global front,
- The BOJ goes all in on money printing, promising to double the size of its monetary base by 2015, in order to defeat deflation. The action has immediately drawn warnings from a number of prominent investors of a potential avalanche of Yen selling.
- Canada prints its worst job number since February 2009.
- Brazilian industrial production disappoints, forcing its central bank to keep rates on hold despite hot inflation. The country has become an unfortunate victim of rampant central bank printing.
- In Europe, unemployment hit another record high in February. Spain plans to revise its growth forecast lower (surprise surprise) and will ask for more time to reduce its budget deficit. And, while many are pointing at no signs of a bank run in Cyprus, the numbers may be telling a different story.
- The situation in North Korea continues to escalate and U.S. seems to be taking matters pretty seriously.