It appears Chicago businesses are immune to the vaguaries of the worst quarterly wage growth in US history. Following significant weakness earlier in the year, Chicago PMI surged to 54.7, the second highest in 2015, smashing expectations of a 50.8 print. Having flashed its recessionary warning lights, while 7 underlying factors improved led by increased production and new orders (and prices paid), employment continued to fall (though at a slower pace). After missing in July's preliminary print (93.3 vs 94.0), UMich consumer sentiment final print for July dropped even further to 93.1, heading back towards the lows of the year as hope plunged from 87.8 to 84.1 - the lowest since Nov 2014.
In a repeat of Thursday's action, Chinese stocks which had opened about 1% lower, remained underwater for most of the session before attempting a feeble bounce which took the Shanghai Composite fractionally into the green, before the now traditional last hour action which this time failed to maintain the upward momentum and the last day of the month saw a surge in volume which dragged the market to its lows before closing roughly where it opened, -1.13% lower. This caps the worst month for Chinese stocks since since August 2009, as the government struggles to rekindle investor interest amid a $3.5 trillion rout, one which has sent the Shanghai market lower by 15% - the biggest loss among 93 global benchmark gauges tracked by Bloomberg.
Last week was a complete dead zone for US macro, however with the peak of Q2 earnings season there was more than enough commotion for everyone. This week US macro starts to pick up again, with Durable Goods on Monday, followed by Case Shiller, Q2 GDP, the Chicago PMI, various consumer confidence indices, and of course, the July FOMC meeting on Wednesday.
It all started in China, where as we noted previously, the Shanghai Composite plunged by 8.5% in closing hour, suffering its biggest one day drop since February 2007 and the second biggest in history. The Hang Seng, while spared the worst of the drubbing, was also down 3.1%. There were numerous theories about the risk off catalyst, including fears the PPT was gradually being withdrawn, a decline in industrial profits, as well as an influx in IPOs which drained liquidity from the market. At the same time, Nikkei 225 (-0.95%) and ASX 200 (-0.16%) traded in negative territory underpinned by softness in commodity prices.
Despite much hopeful banter among the mainstream media, Goldman forecast nonfarm payroll job growth of 220k in June, notably below consensus expectations of 234k. This is roughly in line with Goldman's expectations for below average job growth over the remainder of 2015. Employment indicators were mixed in June: reported job availability, the employment components of most manufacturing surveys, and ADP employment growth improved, but jobless claims and job cuts both rose slightly and online job ads declined. Overall, the June data point to a gain below the very strong 280k increase in May.
So much going on that by the time an article is prepared, everything has changed and it has to be scarpped. But, in any event, here is an attempt to summarize all that has happened in another turbulent overnight session.
Chicago PMI has now missed 4 of the last 5 months and printed sub-50 contractionary indications for 4 of the last 5 months. June's data improved from May (rising from 46.2 to 49.4) but missed expectations and is the weakest June print since 2008. Notably, away from 2015, June's print is the weakest since September 2009. Under the covers it was ugly - employment plunged to the weakest since Nov 2009, order backlogs plunges to the lowest since September 2009, and prices paid rose again (pressuring margins).
The Greek D-(efault) day has arrived, and with it so has quarter-end window dressing for many underwater hedge funds (recall the S&P is now red for the 2015) which means the rumor mill today will be off the charts. And sure enough, less than an hour ago, futures exploded higher as did the EURUSD, following another "report/rumor" of a last minute detente between Greece and the Troika when Greek Ekahtimerini said that "Tsipras is reconsidering the last-ditch offer made by European Commission President Jean-Claude Juncker, sources have told Kathimerini."
At the open, Europe looked in the abyss, and with no help coming from China, it did not like what it saw: And then the answer came from the Swiss National Bank, which stepped in to prevent the collapse just as Europe was opening. Because seemingly out of nowhere, a tremendous bid came in to life the EURCHF, buying Euros (against the CHF and the USD) and selling Europe's last left safety currency. We now know that it was the SNB, the same central bank which is the proud owner of well over $1 billion in Apple stock.
What to expect next week.
Currently, there are things occurring that are very troublesome, and in more normal times, would likely already have investors heading for cover. However, in today's liquidity fueled, Central Bank supported environment, that has yet to be the case. The reason was best described recently by Dr. Robert Shiller "I call this the 'new normal' boom ó it's a funny boom in asset prices because it's driven not by the usual exuberance but by an anxiety." What happens next is only a guess. However, historically, it hasn't been the outcome that investors were hoping for. But then again, maybe "bearish bull" isn't as much of an oxymoron as it is just a warning.
Once again it's all about Greece, with the latest iteration of a "Greek deal is imminent" rumor making the rounds and, just like yesterday, sending futures in the green, just a little over an hour after the increasingly more illiquid E-mini future has slid 0.7%. The EUR, where the bulk of Virtu headline kneejerk reacting algos are to be found, has surged over 100 pips overnight on more hope and optimism.
The latest data makes us wonder: is the Chicago manufacturing snapshot no longer an accurate indication of what to expect from the US manufacturing sector, or, the real question, is one of these two data sets not not seasonally-adjusted enough. (that's of course rhetorical: everyone knows that it is the worse data that always needs more seasonal adjustments).
Remember China's 6% crash last week? It is now a distant memory made even more remote thanks to the latest batch of ugly data out of China, coupled with hints of even more liquidity injections, which led to the latest surge in the Shcomp, an index that has put most pennystocks to shame. In Europe, the big story remains Greece, and as everyone expected, the doomed country and its creditors failed to make a deal on Sunday. This is after Greek Officials were said to have prepared a draft agreement, which was expected to be announced on Sunday. Not helping things, Greek PM Tsipras came out in fully defiant mode and accused bailout monitors of making “absurd” demands and seeking to impose “harsh punishment” on Athens. A bunch of final PMI number showed a modest improvement in the periphery at the expense of Germany whose deterioration is starting to be a concern.
Following Milwaukee ISM's plunge to 15-month lows this morning with a plunge in new orders (missing for 4 of last 5 months), Chicago PMI printed a disappointing 46.2 (against expectations of a slight rise to 53.0 from 52.3 last month) - lower than the lowest economist estimate. After last month's modest (dead-cat) bounce back from winter's collapse to 6 year lows, this re-collapse is hardly the kind of Q2-recovery-reinforcing data the mainstream wants. With the level now back at the same when Lehman hit, New Orders, Production, and Employment all contracted in May.