Thursday is just another day that finds market participants trying to sort out the same three-sided quandary defined by incrementally poor data, incrementally dovish central banks and incrementally positive signs of “movement” on the trade dispute.
This is getting hopelessly tedious, which is probably why markets have felt so moribund this week as everyone waits for something definitive despite not being able to say what exactly it is we’re waiting on.
Central banks are paying attention, there’s little doubt about that. The January Fed minutes clearly suggest an announcement on the end of runoff is coming next month. That said, the bar for a dovish surprise has apparently been ratcheted even higher now, because some analysts were actually disappointed at the dearth of rate cut mentions. That is all kinds of silly considering it was just two months ago when most of the Street still expected at least two hikes in 2019.
PMI data from around the globe continues to paint a rather disconcerting picture with regard to external demand where that means the trade war is clearly manifesting itself in the numbers even as reasonably upbeat services prints suggest some domestic resilience.
Stateside, the Philly Fed was a disaster, printing an egregious -4.1 in February, down from 17 last month and the biggest miss versus expectations since August 2011 (it was in the top ten biggest misses going back three decades).
New orders plunged to -2.4 from 21.3 (that’s the biggest one-month decline since October 2008) and shipments dropped to -5.3 from 11.4.
Expectations held up, but that’s small comfort considering the headline print, which was the first negative reading since May 2016.
“Despite the sharp decline in the index of current conditions, the majority of forward-looking components held steady”, Barclays writes, adding that due to the six month forecasts for general business conditions and the outlook for new orders, shipments, and inventories holding up, they “read the sharp drop in February orders and shipments alongside a modest inventory build as likely reflecting the effects of the federal government shutdown and the concerns about the budget process that could have led to a second shutdown in February.” In other words, they expect a rebound in the headline next month.
That’s not going to stop the clickbait crowd (and every strategist who lives and dies by the next flashy, dour data print) from bombarding Twitter with their “largest since”/”biggest since”/”worst since” headlines, though. And you’ll click on them, because that’s what you do.
Speaking of being bombarded with headlines, the trade rumor mill is alive and well, with the latest “news” revolving around the idea that there will be five (yes, five) MOUs involved in a “final” Sino-US trade deal covering the myriad issues at the heart of this contrived dispute which is now dragging into what seems like its 46th year.
Additionally, Bloomberg was out Thursday morning reporting that China has suggested it might be willing to buy another $30 billion/year worth of US agricultural goods including, naturally, soybeans. That would be part of one of the five MOUs, according to “people” – it’s not clear if those “people” are the same “people” who were cited in the overnight report about the memorandums.
“The purchases would be on top of pre-trade war levels and continue for the period covered by the memoranda”, the sources told Bloomberg. This is ostensibly good news for farmers who went bankrupt from the tariffs and who were forced into a Depression-era government bailout program last year. But hey, at least they got a green “Make Farmers Great Again” hat out of the deal. Or actually, no they didn’t. They had to pay Trump $45 for those.
Of course stories about China promising/proposing/suggesting/hinting that they’ll buy more product from US farmers have been a mainstay of the news cycle since the trade truce in December and Trump continues to toss around entirely nebulous phrases like “a lot” and “a tremendous amount” when describing the scope of these prospective purchases. So maybe take this with a grain of salt (or a kernel of corn). Sure, China is buying more and additional purchases will doubtlessly be part of any final deal, but given how self-evident that is, it’s not clear why it’s “news” until something is finalized.
Underscoring the absurdity in all of this is the following line from Bloomberg’s Thursday morning scoop-let:
Nobody responded to a fax sent to China’s Commerce Ministry late Thursday.
Playing out in the background is the ever present threat of auto tariffs, yet another facet of Trump’s multi-front trade war. Needless to say, if he moves ahead with those, it would represent a grievous blow to Europe and Japan at the worst possible time, where “worst possible time” is a reference to manufacturing PMIs which continue to suggest that Trump is having a lot of “success” when it comes to bringing about the next global downturn.
If you’ve got a good read on all of this and/or think your crystal ball is more prescient than the next guy’s and/or are adept at untangling strands of Christmas lights you hastily stuffed into a moldy cardboard box last season, please do drop us a line and let us know.