The weak ISM headline number (PMI) was an excuse for bonds and precious metals to bounce and the US dollar to drop today. It evidently inspired wild eyed casino patrons to unwind recent positions (short gold, long USD for instance) as the great and powerful Fed now has reason to stand down in September. Such is life in the casino; always a story, always a play, always manic, always addicted to short-term news and media inputs.
Before looking at the particulars of ISM, let’s review the Machine Tools sales data that we have not looked at in a while. It is and has been W.E.A.K. for years now, outside of the traditional year end tax mitigation bounce. Data through June (source: EDA):
Now ISM is shown to be decelerating on the eve of the much anticipated Jobs report. Well here’s the thing; every month we take pains to show that the strength is in the services segments. So ISM probably has little bearing on what Jobs will show tomorrow. It could stink, but it will not be because manufacturing is wobbling.
From ISM, here are the notables. New orders, production, employment and order backlog contracting and prices still rising. Yes, price increases are easing, but they are still going up.
Here are some individual components. Total PMI eased into contraction after months of expansion.
New orders dropped suddenly into contraction in August after an uptrend.
Prices are in a trend of decelerating increases. Key word: increases.
We have been working a fledgling inflationary story, and indeed some manifestations have cropped up in commodity prices and certainly, stock markets (especially in commodity and resource countries). Also, silver and the PM complex, obviously. Our early bird indicator was the Semi Equipment sector, followed by ISM ‘New Orders’, ‘Prices’ and finally, the Palladium-Gold ratio. PALL-Gold is in a funky looking pattern and bears watching. Daily chart…
Just as we were early to see the economic bounce (ref. the two most recent jobs reports after two previous poor reports) we should be on the job watching for signs that this thing starts to ease. As noted in Monday’s update on the Semi sector, the Equipment segment is still going well but that sector has some discrete details that may not translate to the economy as a whole. To make a long story short, pending Payrolls tomorrow, there are signs cropping up that things may be easing. That calls all momentum chasing casino patrons to attention.
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