Confidence, Core Competencies, And CAT Naps

Are the “fundamentals” sound?

The answer on Tuesday was: “It’s complicated.”

Durable goods orders beat, climbing 1.9% for September, nearly four times consensus, while core orders rose 1%, also better than economists predicted. Core shipments ticked 0.3% higher, down considerably from August, and slightly less than the market was looking for.

All in all, a decent report that does nothing to change the macro narrative or otherwise undermine the contention that manufacturing is on the mend in the US, even as the fate of the all-important services sector hangs in the balance with COVID cases spiraling.

Consumer confidence, meanwhile, came in below expectations, printing 100.9, down from September, when the Conference Board’s gauge jumped the most in 17 years.

Current conditions held up nicely, rising to a seven-month high, but expectations deteriorated.

Lynn Franco, the Conference Board’s senior director of economic indicators, said there’s “little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high.”

Apparently, consumers are getting concerned about the trajectory of the labor market. More respondents said they see fewer jobs over the next six months. It probably doesn’t help that Congress decided to stonewall voters on stimulus pending the results of next week’s election. After all, if the stock market is doing fine, who cares, right?

As ever, I’ll admit that’s a “chart crime,” but it’s of the misdemeanor variety, and it’s a useful visual aide.

Meanwhile, bellwether Caterpillar declined to provide guidance for next year while discussing better-than-expected Q3 results on Tuesday. “Better” is obviously a relative term. Revenue plunged 23% YoY on slumping sales volumes attributable to lackluster end-user demand. Profits dove 54%.

Jim Umpleby tried to strike an upbeat tone, but another monthly decline in machine sales laid bare the ongoing malaise. It just never ends (figure below).

Despite that, shares have risen for seven consecutive months.

If you’re wondering what the bull case is from here, you probably won’t be terribly surprised to learn that it leans at least partially on China.

“Obviously, the Chinese government is stimulating the economy to try and recover post-COVID, and it’s very strong, particularly in the excavation market,” CFO Andrew Bonfield told Bloomberg on Tuesday.

According to the IMF’s forecasts, China is the only major economy on the planet that will manage to post growth in this virus-blighted year.

So, even if things aren’t firing on all cylinders stateside, American companies can always rely on China.

At least until Beijing is “forced” to roll out the dreaded “unreliable entities” list.


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