Wednesday, August 01, 2012

Manufacturing Surveys Show Slowing Economies

The markets are slightly higher this morning on a better than expected ADP report and ahead of the FOMC announcement later.  The ADP employment report showed the private sector added 163,000 jobs in July, which is well above the 125k consensus expectations.

As for the July ISM Manufacturing index, it came in at 49.8 which is little changed from last month's 49.7 reading.  This is the second month in a row of a sub-50 reading which is the line of demarcation between expansion and contraction.

Speaking of manufacturing readings, the PMI figures in Europe are mostly lower as well.  The eurozone's PMI is at 44.0, the UK fell to 45.4, Germany was lowered to 43.0, and France was revised down to 43.4.  So growth remains slow in Europe as these PMI readings point to further contraction.

Asian markets were mixed overnight.  China's official PMI reading was in-line at 50.1 in July, but the HSBC private estimate came in at 49.3, up from 48.2 in June.  This and the expectation that China will provide more stimulus to their economy helped Shanghai rally overnight.

Stocks rising on earnings: ALL, SIMG, PZZA, CMCSA, GRMN, AGN, SSYS, CTRX

Stocks falling on earnings: MA, ENR, HOG, ICE

The 10-year yield is bouncing back above the 1.50% level.  And the VIX is slightly lower to 18.67.

The dollar index is roughly flat, and commodities are mixed.  Oil prices are higher to $88.85 while gold prices are lower near $1601.  Silver and copper prices are lower also.

Trading comment: I doubt that the Fed announces any new QE measures today.  I think it is more likely that they repeat the mantra that they stand ready to act.  And if the data continues to weaken, then maybe they take action in September.  But I would prefer to see them keep some powder dry for if the economy really hits the wall around 'fiscal cliff' time.  The bigger market moving news could be the ECB meeting this week.  They need to announce some new measures or risk another spike in peripheral bond yields in Spain and Italy.

KAM Advisors has long positions in CTRX


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