Afternoon Note
Although all major equity indices opened in the red, they are no longer trading at intraday lows thanks to relatively encouraging economic data. The biggest culprit for the selloff continues to be oil, as WTI crude prices fell as low at $63.72 per barrel over the weekend, which is the lowest level since July 2009. Brent crude also touched a low of $67.53, which is the lowest level since October 2009. Gold prices were originally lower as Switzerland voters reportedly rejected a measure that would have required the Swiss National Bank to increase its gold reserved by 20%; currently, the reserve requirement is 8%. However, many traders determined the news was overblown and so precious metals are trending higher again. With lower gas prices, there was way more optimism going into Black Friday than in the past few years, however sales were still pretty lousy to say the least. The National Retail Federal estimated that retails sales for the Thanksgiving weekend will show a decline of 11.3% versus the same period last year. However this is a very narrow window for estimations and shouldn’t be viewed as an accurate barometer for the health of the American consumer. Instead, ISM provided the market with a different kind of optimism.
Despite a slight slowdown month over month, the rate of growth in ISM’s manufacturing survey sample remains incredibly strong, and well beyond other reports, especially government data which have been flat. ISM’s reading for the Manufacturing Purchasing Managers’ Index (PMI) came in at 58.7 for the month of November which came short of the October reading of 59.0, but still near recovery highs. The new orders component is usually the point of interest in PMI reports, and this time was no exception. New orders came in at a whopping 66.0 compared to October’s 65.8 with total backorders up to 55.0, which is a very strong reading. As the chart below indicates, new orders have been climbing nicely since January 2014. The employment component was solid at 54.9, though slightly lower than the 55.5 reading in October. Production was strong, though slightly lower at 64.4 in November versus 64.8 in October. Strength could also be seen from a decline in delivery times as well as steady inventory levels. The elephant in the room this time was a notable contraction in input prices at 44.5 compared to the 53.5 level in October. This is the first reading in contractionary territory since last July, and reflects the decline in oil prices; however there were notable declines in the prices of apparel, textiles, food, machinery and electrical equipment among others. Prices only appeared to increase in furniture and paper–related products. All in all, we feel it’s difficult to make conclusions on this sample, as there has been mixed readings in the Fed district manufacturing reports. Nevertheless, the market still managed to move off of intraday lows following ISM’s report and this is a great sign.
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