With investors around the world worried about markets, today Peter Boockvar warned they have good reason to worry because the global economy is weakening.
Peter Boockvar: Markit’s May US services PMI fell to 51.2 from 52.8 in April and vs 51.3 in March. These figures are a definite comedown from the 55.9 average seen in 2015. Business optimism about the future fell to the “lowest recorded since the survey began in October 2009.” Employment dropped to the weakest since December ’14…
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Peter Boockvar continues: The new orders component was “one of the weakest recorded” and “Some firms commented on a cyclical slowdown in investment spending and continued unwillingness among clients to commit to new projects.” Backlogs fell “with the rate of decline accelerating to its fastest for just over two years.” Input Price Inflation rose to the quickest pace since July 2015. Combining Markit’s services index today with the manufacturing figure a few days ago brings the composite index to 50.8 from 52.4 in April.
Bottom line, Markit is now well below the consensus for Q2 GDP based on these data points. “The surveys are now pointing to just .7% annualized GDP growth in Q2, notwithstanding any sudden changes in June.” The Chief Economist said “A deteriorating order book situation and waning business optimism have meanwhile led to a further pull back in hiring as companies scaled down their expansion plans.” And, “manufacturing is already in its steepest downturn since the recession.” This is quite an environment for another rate hike and markets are certainly pretty sanguine that the Fed hiking rates under the current circumstances is just fine and can be handled. They also felt the same on December 16th when the Fed first hiked rates. The S&P’s closed at 2073 that day. The sharp stock market rally yesterday and today are evidence that markets either don’t believe Markit’s data which reads poorly and/or aren’t paying attention waiting for ISM instead.
Look At What Is Happening In Thailand
… Another victim of slowing global trade and collateral damage from China was Thailand as they reported an 8% y/o/y drop in April exports, well worse than expectations of a fall of 1.5%. DJ reported that the Commerce Ministry said the data “reflected challenging trade conditions around the world, as uncertainty has persisted around the global economic recovery and prices of oil and agricultural products have stayed low.” Imports fell by 14.9%, almost double the estimate of a decline of 7.7%.
Also of importance…
A portion of today’s note from Art Cashin: Overnight And Overseas – In Asia, most markets rallied in a catch-up move to Tuesday’s rally in Europe and the U.S. The odd market out was the Shanghai. Emerging markets joined in the rally despite further strength in the greenback.
In Europe, the pound continues to soar as Brexit is deemed less likely. Equities add to yesterday’s huge gains as news of a Greek deal spreads. London is higher but not as strong as the continent as mining stocks lag due to commodity weakness.
Among other assets, the dollar rallies against the yen and the euro. Both precious and base metals are lower. Chinese yuan set at a multi-year low. Crude higher on API report of an inventory plunge.
Consensus – Tuesday broke the pattern of lower highs seen in recent weeks. That has handed the ball back to the bulls. The ECB will have to look for new instruments to buy, while the BOJ is said to own 59% of all available ETFs on their market. Futures say the odds of a June hike are 33%.
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