Chicago PMI

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ISM Manufacturing Surges With New Orders At 10-Year High; Construction Spending Jumps Most In Over 2 Years





ISM Manufacturing has risen almost without hesitation for the seven months from the January collapse to new 3-year highs, printing at a dramatic 59.0, its biggest beat in over a year, just shy of the recovery cycle's highs in 2011. New orders grew for the 15th month in a row to the highest reading since 2004! Earlier, Markit's US PMI missed expectations and fell modestly from preliminary data to 57.9, but moved to its highest since April 2010. Construction spending also surged, rising 1.8% (smashing expectations) - its biggest MoM gain since May 2012.

 
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Chicago PMI Explodes To Biggest Beat In 10 Months, Employment Drops Further





Having collapsed to 13-month lows in July - with the biggest miss on record - Chicago's PMI rebounded the way only US macro 'soft-survey' data can. After plunging from 62.6 in June to 52.6 in July, August printed a magnificent 64.3 - its highest since May - showing up this data's noisy nature as entirely useless. From worst miss on record (and 13-month lows) to best beat in 10 months and 5 month highs... brilliant. It would seem ISM has entirely given up on any credibility at all... However, given this exuberance (in production and new orders), the employment sub-index dropped yet again.

 
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Frontrunning: August 29





  • Obama Cools Talk of Strikes Against Islamic State in Iraq or Syria (WSJ)
  • Separatists say will allow 'trapped' Ukrainian forces to withdraw (Reuters)
  • Ukraine Fighting Surges as Russian-Backed Forces Gain (BBG)
  • Missouri police sued for $40 million over actions in Ferguson protests (Reuters)
  • BTFDividend stocks? Tesco Slumps as Retailer Slashes Dividend 75% on Forecast (BBG)
  • In town halls, U.S. lawmakers hear voter anger over illegal migrants (Reuters)
  • Obamacare’s Latest Threat Nears Turning Point in Court (BBG)
  • Untangling the Mess of Austrian Bank Hypo (WSJ)
  • The billion-dollar fall of the house of Espirito Santo (Reuters)
  • Manhattan Condo Resale Prices Reach Record High (BBG)
  • California Drought Squeezes Wells: State Considers Regulating Groundwater Use for First Time (WSJ)
 
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S&P Futures Surge Over 2000, At Record High, On Collapsing Japanese, European Economic Data, Ukraine Escalations





Following Wednesday's laughable tape painting close where an algo, supposedly that of Citadel under the usual instructions of the NY Fed, ramped futures just over 2,000 to preserve faith in central planning, yesterday everyone was expecting a comparable rigged move... and got it, only this time milliseconds after the close, when futures moved from solidly in the red, to a fresh record high in seconds on no news - although some speculate that Obama not announcing Syrian air strikes yesterday was somehow the bullish catalyst - and purely on another bout of algo buying whose only purpose was to preserve the overnight momentum. Sure enough, this morning we find that even as bond yields around the world continue to probe 2014 lows, and with the Ruble sinking to fresh record lows as the Ukraine situation has deteriorated to unprecedented lows, so US equity futures have once, driven by the now generic USDJPY spike just after the European open, again soared overnight, well above 2000 and are now at all time highs, driven likely by the ongoing deflationary collapse in Europe where August inflation printed 0.3%, the lowest since 2009 while the unemployment remained close to record high, while the Japanese economic abemination is now fully featured for every Keynesian professor to see, with the latest Japanese data basically continuing the pattern of sheer horror as we reported yesterday.

 
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Key Events In The Current Week





Key highlights in the coming week: US Durable Goods, Michigan Conf., Services PMI, PCE, and CPI in Euro area and Japan. Broken down by day: Monday - US Services PMI, New Home Sales (Consensus 4.7%); Singapore CPI; Tuesday - US Durable Goods (consensus 7.5%) and Consumer Confidence; Wednesday - Germany GfK Consumer Confidence; Thursday - US GDP 2Q (2nd est., expect 3.70%, below consensus) and Personal Consumption; Euro area Confidence; CPI in Germany and Spain; Friday - US Michigan Conf. (consensus 80.1), PCE (consensus 0.10%), Chicago PMI; Core CPI in Euro area and Japan (consensus 2.30%). Additionally, with a long weekend in the US coming up, expect volumes into the close of the week to slump below even recent near-record lows observed recently as the CYNKing of the S&P 500 goes into overdrive.

 
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2014's Biggest Equity, Bond, And FX Market Moves





In the first seven months of 2014, Goldman notes that equity, fixed income, and FX markets were most intently focused on the labor market with a number of the largest moves occurring due to employment reports and jobless claims. The equity market responded to a mix of economic, monetary policy, and geopolitical news. The fixed income market focused on employment reports, although other factors also resulted in large one-day moves. The dollar, although less volatile than usual, did move on both US economic developments and news out of Europe.

 
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ISM Manufacturing Surges To 3 Year Highs, Construction Spending Plunges Most Since Jan 2011





The numbers have been 'adjusted' and all is well in the world. Never mind Chicago PMI, or US PMI, the ISM Manufacturing index for July printed 57.1 - the highest since April 2011 - well above expectations and last month's 55.3. Employment rose notably (the opposite of US PMI) and inventories contracted. That's the great news. Then there's the meh news - consumer confidence slipped lower in July. Then there's the horrible news - construction spending collapsed at 1.8% MoM - its biggest drop since Jan 2011. Take your pick which will define your bias.

 
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Futures Tumble Again On Global Equity Weakness





If yesterday's selloff catalysts were largely obvious, if long overdue, in the form of the record collapse of Espirito Santo coupled with the Argentina default, German companies warning vocally about Russian exposure, the ongoing geopolitical escalations, and topped off by a labor costs rising and concerns this can accelerate a hiking cycle, overnight's latest dump, which started in Europe and has carried over into US futures is less easily explained although yet another weak European PMI print across the board probably didn't help. However, one can hardly blame largely unreliable "soft data" for what is rapidly becoming the biggest selloff in months and in reality what the market may be worried about is today's payroll number, due out in 90 minutes, which could lead to big Treasury jitters if it comes above the 230K expected: in fact, today is one of those days when horrible news would surely be great news for the momentum algos.  Still, with futures down 0.6% at last check, it is worth noting that Treasurys are barely changed, as the great unrotation from stocks into bonds picks up and hence the great irony of any rate initiated sell off: should rates spike on growth/inflation concern, the concurrent equity selloff will once again push rates lower, and so on ad inf. Ain't central planning grand?

 
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Previewing Tomorrow's 'Anti-Goldilocks' Payrolls Data





It appears - judging by today's shenanigans - that good news for Main Street (rising employment costs) is bad news (for stocks), though obviously there are other factors; but tomorrow's payrolls data is the last best hope before the Fed finishes its taper for them to pull a 'data-driven' U-turn out of the bag. Consensus is for a drop from last month's exuberance at 288k to 230k (with Barclays slightly cold and Deutsche slightly hot). The fear, for market bulls, is that the print is anti-goldilocks now - not bad enough to provide excuses for lower-longer Fed rates; and not high enough to justify the hockey-stick of miraculous H2 growth priced into stocks. Average S&P gains on NFP Friday are 0.5% but recently have become more noisy.

 
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Chicago PMI Collapses To 13-Month Lows, Biggest Miss On Record





We warned last month that under the covers Chicago PMI looked a lot weaker than the headlines and this morning's collapse confirms that. Against expectations of a small rise to 63.0, Chicago PMI plunged from 62.6 to 52.6 (13-month lows) for the biggest miss on record. According to the release itself, "A monthly fall of this magnitude has not been seen since October 2008 ." The was an 8 standard-deviation miss from analyst expectations (Joe Lavorgna was on the high side at 63.0). New orders, inventory, production, order backlogs, and prices paid all dropped (but employment rose?). This is the biggest 2-month drop since Lehman (and 2nd biggest since 1980). We await the seasonal adjustment "correction" as MNI get the call from Yellen.

 
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Frontrunning: July 31





  • Moscow fights back after sanctions; battle rages near Ukraine crash site (Reuters)
  • On Hold: Merkel Gives Putin a Blunt Message (WSJ)
  • Argentina’s Default Clock Runs Out as Debt Talks Collapse (BBG)
  • Argentina braces for market reaction to second default in 12 years (Reuters)
  • Banco Espirito Santo Plunges After Posting 3.6 Billion-Euro Loss (BBG)
  • Adidas Plunges After Cutting Forecast on Russia, Golf (BBG)
  • GOP Says Lerner Emails Show Bias Against Conservatives (WSJ)
  • Londoners Cashing in Flee to Suburbs as Home Rally Wanes (BBG)
  • BNP Paribas Reports Record $5.79 Billion Quarterly Loss (WSJ)
  • Swiss Banks Send U.S. Client Data Before Cascade of Settlements (BBG)
  • Putin Sows Doubt Among Stock Bears Burned by 29% Rebound (BBG)
 
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Futures Tumble On Espirito Santo Loss, European Deflation, Argentina Default





It has been a deja vu session of that day nearly a month ago when the Banco Espirito Santo (BES) problems were first revealed, sending European stocks and US futures, however briefly, plunging. Since then things have only gotten worse for the insolvent Portuguese megabank, and overnight BES, all three of its holdco now bankrupt, reported an epic loss despite which it will not get a bailout but instead must raise capital on its own. The result has been a record drop in both the bonds (down some 20 points earlier) and the stock (despite a shorting ban instituted last night), which crashed as much as 40% before stabilizing at new all time lows around €0.25, in the process wiping out recent investments by such "smart money" as Baupost, Goldman and DE Shaw. The result is a European financial sector that is struggling in the red, while adding to its pain are some large cap names such as Adidas which also tumbled after issuing a profit warning relating to "developments" in Russia. Then there was European inflation which printed at 0.4%, below the expected 0.5%, and the lowest in pretty much ever, and certainly since the ECB commenced its latest fight with "deflation", which so far is not going well. The European cherry on top was Greece, whose dead cat bounce is now over, after May retail sales crashed 8.5%, after rising 3.8% in April.

 
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US Equities Flat While China Surges On More Stimulus And Bailout Hopes





There has been little in term of tier 1 data releases to drive the price action so far in the overnight session which means participants focused on the upcoming US related risk events including the Fed, Q2 GDP and July Payrolls. This, combined with WSJ article by Fed’s Fisher who opined that the FOMC should consider tapering the reinvestment of maturing securities and begin shrinking the Fed’s balance sheet (note that Fisher’s opinion piece is written based on a speech he gave on July 16th) meant that USTs came under pressure overnight in Asia and in Europe this morning. There has been little notable equity futures action (for now: the USDJPY algo team gave it a good ramp attempt just before Europe open, and will repeat just around the US open despite Standard Chartered major cut to its USDJPY forecast from 110 to 106 overnight), although we expect that to change since today is the day when Tuesday frontrunning takes place with full force. We expect equities to completely ignore the ongoing deterioration in Ukraine and the imminent release of EU's own sanctions against Russia, as well as what is now shaping up as an Argentina default on July 30.

 
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Second Half Kicks Off With Futures At Record High On Lethargic Yen Carry Levitation





BTFATH! That was the motto overnight, when despite a plethora of mixed final manufacturing data across the globe (weaker Japan, Europe; stronger China, UK) the USDJPY carry-trade has been a one-way street up and to the right, and saw its first overnight buying scramble in weeks (as opposed to the US daytime trading session, when the JPY is sold off to push carry-driven stocks higher). Low volumes have only facilitated the now usual buying at the all time highs: The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing - yesterday’s S&P 500 volumes were about half that compared to the last trading day of 1H13.

 
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Q2 Rebound Fail: Chicago PMI Drops, Misses By Most Since March





Following last month's "see, the Q2 rebound is a real thing"  exuberance, Chicago PMI re-tumbled in June to 62.5, its biggest miss in 3 months. This is the biggest headline drop since March as inventories rose, order backlogs fell, and new orders fell. On the bright side (despite the fall in new orders, employment rose). It seems the hopes and dreams of Q2 are fading.

 
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