Texas economy

Rapidly declining economy, more data, FOMC, markets, student debt, OXY trading

People look at me and say

Is the end near, when is the last day?

What is the future of humanity?

How do I know, I’ve been left behind

Everyone goes through changes

Seeking to find the truth

don’t look to me for answers

Don’t ask me. I do not know.

– Osbourne, Rhoads, Daisley (Ozzy Osbourne), 1980

Holy Meltdown, Batman!!

It’s not like everyone is watching the S&P Global (formerly Markit) Flash PMIs here in the US. Here, we have long focused on the ISM manufacturing and non-manufacturing indices (PMI) once a month. Yet, it becomes hard not to notice when an economic data point as broad as the surveys released by S&P Global simply collapses.

On Tuesday morning, the S&P Global Manufacturing Flash PMI hit the band at 51.3 for August, below expectations around 51.8. That was down from July’s 52.2, and the worst run in this series since August 2020. Still, above 50 is expansionary, so the number isn’t the end of the world.

However, the S&P Global Services Flash PMI printed at an absolutely grotesque 44.1. It’s deep in contraction territory, missed expectations of 49.8 and was down from July’s already very poor 47.3. This was the worst month for this article as much of the country was in mandatory shutdown in June 2020.

For those following the S&P Global Composite PMI – I like to keep them separate – the August flash came in at 45.0 from July’s 47.7. Clearly, according to US purchasing managers, overall economic activity contracted in July and fell further into contraction in August. Blame whatever you want…blame high inflation, shortages of key materials, delays in deliveries of finished and unfinished goods, and rising interest rates.

The fact is that outside of the labor market data that economists choose to track (because not all labor market data points add up), the US economy is fading fast. We have lots of company. Eurozone flash PMIs also look quite gnarly, especially Germany, as those economies have been hit by the fallout and rising food and energy prices associated with Russia’s war on Ukraine, which has been going on for six months now. Oh, and Asia isn’t a prize either. It’s global.

About 15 minutes later, the Census Bureau reported July new home sales of 511,000 (SAAR), well below consensus (574,000), down from July’s 585,000, and the impression the weakest for this series since January 2016. This came on the heels of other housing-related data points also very weak for July, such as housing starts and existing home sales.

On tap

Later this morning, we will hear more about the US economy in July when the Census Bureau reports durable goods orders. Expectations, as readers can see below, are for a slower pace by any measure. The Core Capital Goods print is the real focus, not the title number.

After that, likely late this morning, the Atlanta Fed will revise its GDPNow model, the closely tracked real-time snapshot of third quarter economic growth. Atlanta currently has a +1.6% third quarter (q/q, SAAR), which, if realized, would feel like a breath of fresh air after six months of economic contraction.

As we move from the overnight session into very early Wednesday, Chicago futures were pricing in a 51% chance of a 75 basis point increase in the target range for the fed funds rate on Sept. 21. That’s up from a majority probability for a 50 basis point hike earlier this week. These futures markets are now pricing a rise of just 25 basis points on November 2, implying that November has not moved despite the visible move in September.

Futures markets still showed the FFR range ending the year at 3.5% to 3.75% and the tightening cycle peaking at 3.75% to 4% in March 2023, before retracting slightly in June 2023 .

Hatzius

Goldman Sachs (GS) chief economist Jan Hatzius appeared on Bloomberg TV on Tuesday. He sees financial markets battening down the hatches for Fed Chairman Jerome Powell’s speech on Friday and then the September 21 FOMC policy statement. About Powell’s perceived warmongering, he’s not so sure.

Hatzius said Powell will “clarify that the job is not done yet” and that “they (the FOMC) are very committed to getting inflation down to 2%.”

However, Hatzius also said: “I think he will make a pitch, like he did in his last press conference, to slow the pace of the increases. We had two 75 basis point moves. Our expectation would be, barring major surprises in the data, that the September move is 50. I don’t think he will be specific on the number, but I think he will say there is a risk of excessive tightening, and so it makes sense to go a little slower than outsized increases.”

My feeling exactly.

Tumbleweeds

Tuesday was essentially a day off for US stock markets. Not for currency markets, as the US dollar is trading at very uncomfortable global valuations, and not for commodity markets, as US natural gas hit a 14-year high, then plunged when Freeport LNG announced that it planned a return to partial operations at the terminal in Quintana, Texas. beginning of November. The hope had been that the ball would start rolling in October. This means US natural gas is staying in the US longer as colder weather descends on Europe.

On the equities side, only the Dow Transportation (+0.65%) and the Philadelphia Semiconductor Index (+0.74%) really showed life on Tuesday. The Russell 2000, Nasdaq Composite, Nasdaq 100 and S&P 500, 400 and 600 all closed Tuesday’s session between +0.18% and -0.22%. In other words, close to “unchanged”. The winners beat the losers by a tiny bit on the Nasdaq market site, while the losers beat the winners, also by a tiny bit on the NYSE. The volume advance took a 55.9% share of the NYSE composite trade and a 53.5% share of the Nasdaq composite trade.

While there was nothing awful about this performance, one might have hoped for more as the markets digested Monday’s selloff. Seven of S&P’s 11 sector-selected SPDR ETFs turned red for the day, as energy (XLE), up 3.61%, easily led the daily performance charts. Cyclicals were leading for the session, with defensive types at the bottom, sandwiching growth.

Overall trading volume actually contracted on Tuesday from already nearly anemic levels on Monday. That is expected ahead of Powell’s speech on Friday. Trading volume on the S&P 500 has not touched the 50-day SMA trading volume for this index since July 29, and this was an “end of quarter” event. Without these forced flows, the index has not reached its 50-day SMA trading volume since July 5.

Controversial

Plans are apparently underway for President Biden to make an announcement on Wednesday on his proposed student loan debt treatment. Scuttlebutt says president will push back moratorium on student debt repayment until after midterm elections, while announcing $10,000 loan forgiveness across the board for those earning less than $125,000 per year. This, of course, places the onus on the taxpayers and hurts the lenders as well as the stakeholders of those lenders.

Now, I don’t want to come across as a tough guy, and I have parents who had and have student debt. I just have a few questions. Since the majority of student debt holders are in the top 60% nationally, and you choose this group for some kind of debt relief in a broad movement, over other groups , I have some questions…

1) What do you do for the child who has repaid his debt?

2) What do you do for guardians who either paid their child’s tuition in advance or paid off their debt for them?

3) What do you do for the child who never went to school for economic reasons?

4) What do you do for the child who has spent four years serving his country to pay for his studies?

5) What do you do for the child who served his country while trying to pay for his education and suffered an unfortunate outcome?

6) What do you do for the child who has a heavy non-school debt?

Each of these people is treated unfairly if all or part of the student debt is forgiven. Each of them owes more than a “that’s too bad, mate.”

To burst?

Have you taken a good look at Warren Buffett’s recent target, Occidental Petroleum (OXY) lately?

Readers will note that despite OXY’s strong run and the stock rallying back to its 21-day EMA and 50-day SMA, that for this name, the daily MACD and Relative Strength reading is strong, but not technically yet. overbought.

Readers will also note that support from June to August was found at a 38.2% retracement of the stock’s rally from December 2021 to the end of May. This support formed the bottom of what appears to be a handleless cup or saucer. The stock can do two things here, and they both tend to be positive (unless they break).

Currently we have a cut with a $74 pivot (left side of the cut). This would put my target price at $90. Now, if the stock starts to sell off from here, the cut pattern will develop a handle. During such an event, the pivot moves from the left side of the cup to the right. Right now, the two potential pivots are essentially level, leaving my target unimpacted. That said, we don’t know if this right side peak has ever been built. Yes, this trade was a winner. Yes, I’m still optimistic from here.

Economy (all Eastern times)

07:00 – 30-year MBA mortgage rate (weekly): Last 5.45%.

07:00 – MBA Mortgage Applications (Weekly): Last -2.3%.

8:30 a.m. – Durable goods orders July): Expected 0.6% m/m, latest 1.9% m/m.

08:30 – ex-Transport (July): Expected 0.2% m/m, Last 0.3% m/m.

8:30 a.m. – former Defense (July): Expected 0.3% m/m, Latest 0.4% m/m.

08:30 – Basic consumer goods (July): Expected 0.3% m/m, Last 0.5% m/m.

10:00 a.m. – Pending home sales (July): Expected -2.8% m/m, latest -8.5% m/m.

10:30 a.m. – Oil inventories (weekly): Last -7.056M.

10:30 a.m. – Fuel stocks (weekly): Last -4.642M.

The Fed (all Eastern times)

No public appearances scheduled.

Today’s Earnings Highlights (BPA Consensus Expectations)

After the close: (ADSK) (1.57), (BOX) (.27), (NVDA) (.49), (CRM) (1.03), (SNOW) (-.01), (SPLK) (-.35 ), (WSM) (3.48)

(XLE and NVDA are interests in Member Club Action Alerts PLUS. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

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